Unit 2: Debt Securities Flashcards
Have neither ownership interest in the issuing corporation nor voice in management; as creditors, ___________ receive preferential treatment over common and preferred stockholders if a corporation files for bankruptcy.
Bondholders
_______ are considered senior securities
Bonds
Corporate bonds with maturities of five years or more are known as ______ debt
Funded debt
Who is the nation’s largest borrower and the most secure credit risk?
The federal government
Debt securities with less than one year maturity
Treasury Bills
Debt securities with 2-10 years of maturity
Notes
Debt Securities with more than 10 years maturity
Bonds
The debt obligations of state and local governments and their agencies.
Municipal Securities
Par Value, also known as _____ value, is normally $______ per bond, meaning each bond will be redeemed for $_______ when it matures
face value
$1,000 per bond
$1,000
When the loan principal is repaid to the investor
Maturity Date
Three basic types on bond maturity structires
Term, serial and balloon
Structured so that the principal of the whole issue matures at once
Term bond
Schedules proportions of the principal to mature at intervals over a period of years until the entire balance has been repaid
Serial bond
Physical evidence that designates the bond’s ownership and characteristics (in essence an IOU)
Certificates
A common form of bond issued today; the issuer’s transfer agent records the bondholder’s name. The buyer’s name appears on the bond certificate’s face
Registered bond
Most corporate bonds are issued in _____ ______ form
Fully Registered Form
Owners do not receive certificates. The transfer agent maintains the security’s ownership records. Must U.S. Govt bonds are available only in this form.
Book-entry form
A rating of BBB/Baa or higher to be suitable for purchase by banks.
Investment grade
Investment grade bonds are also known as _______ bonds
Bank-grade bonds
The ease with which a bond or any other security can be sold. The term ______ and marketability are synonymous. Ether term refers to how quickly a security can be converted into cash.
Liquidity
The schedule of interest and principal payments due on a bond issue
Debt Service
When a bond’s principal is repaid
Redeemed
Allows the issuer to redeem a bond issue before its maturity date; either in whole or in part
Call feature
An issuer pays bondholders a premium, a price higher than par
Call premium