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SIE UNIT 1 > Unit 3 Debt Securities (Bonds) > Flashcards

Unit 3 Debt Securities (Bonds) Flashcards

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1
Q

what is a bond?

A

a loan / debt security

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2
Q

who are issuers of bonds?

A

corporations, municipalities, U.S. government

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3
Q

who are the participants of a bond?

A

issuers and investors

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4
Q

what does a bond pay?

A

fixed interest semiannually

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5
Q

how long does a bond pay for?

A

a stated period until it matures

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6
Q

what happens at bond maturity?

A

balance of the loan is repaid in a lump sum

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7
Q

what value are bonds issued at?

A

par value with fixed interest rate

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8
Q

which market do bonds trade in?

A

secondary market

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9
Q

how do bonds trade in secondary market?

A

at premium or discount

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10
Q

what are the types of corporate bonds?

A

secured and unsecured

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11
Q

what are secured bonds backed by?

A

specific asset such as mortgages, equipment, or other collateral owner by issuer

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12
Q

what are unsecured bonds backed by?

A

issuer’s credit and promise to pay

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13
Q

what are u.s. gov. bonds charactarized by?

A

high liquidity and safety of principal since they are backed by full faith and credit of the federal gov.

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14
Q

who issues municipal bonds?

A

states, counties, cities, or other political subdivisions

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15
Q

what backs municipal bonds?

A

either the taxing power of the municipality or the revenue generated from fees by users of municipal bonds

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16
Q

what are money market securities?

A

short- term debt instruments

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17
Q

when do money market securities mature?

A

1 year or less

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18
Q

what are characteristics of money market securities?

A

highly liquid and offer safety of principal

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19
Q

where are issuer’s bonds sold?

A

primary offering

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20
Q

what is a typical time frame for bond maturity?

A

10-30 years from the date of issue

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21
Q

what is principal?

A

amount of money borrowed by the issuer

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22
Q

what is par value? how much?

A

face value, $1000

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23
Q

when is interest paid?

A

semiannually

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24
Q

when is principal paid?

A

at maturity

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25
Q

what are bond issue structures?

A

term, serial, or series bonds

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26
Q

what is the structure of a term bond?

A

every bond having the same interest rate and maturity date

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27
Q

what is the structure of a serial bond?

A

varying maturities and interest rates

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28
Q

how are corporate and US gov bonds structured?

A

term bond

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29
Q

how are municipal bonds structured?

A

serial bond

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30
Q

what is the structure of a balloon maturity?

A

a larger amount of bonds maturing on a specific date

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31
Q

what is the structure of a series bond?

A

varying dates of issuance all maturing at the same time

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32
Q

what is a coupon rate?

A

bond’s annual rate

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33
Q

what is coupon rate expressed as?

A

par value or $1000

34
Q

when is interest paid on coupon rate?

A

semiannually

35
Q

how is coupon paid?

A

on the original $1000 principal balance

36
Q

what is another name for coupon rate?

A

nominal yield (NY)

37
Q

what is nominal yield/ coupon rate based on

A

$1000 par value

38
Q

how much of annual interest are bond holders paid?

A

half of the annual interest per payment

39
Q

what is a zero-coupon bond?

A

bonds that have no coupon at all but are issued at a discount from par

40
Q

what is the interest on a zero- coupon bond?

A

the difference between the discounted purchase price and par

41
Q

when is interest paid on zero-coupon bonds?

A

at maturity when the principal is repaid

42
Q

what is the accreted value?

A

value at any given time of a debt instrument that accrues(grows) interest over multiple years

43
Q

what is accretion?

A

method of taxing imputed interest

44
Q

what is imputed intetrest?

A

interest you are paying taxes on but have not yet received

45
Q

what is a maturity date?

A

time at which the borrower will repay the face value (principal balance) to the bondholder

46
Q

what is redemption?

A

repayment of principal on the maturity date

47
Q

what does the lenders’ final payment include?

A

par value and the last semiannual coupon payment

48
Q

when is the lender’s final payment due

A

at maturity from the issuer

49
Q

what is a short term debt instrument(bond)?

A

maturity date 2 years or less

50
Q

what is a intermediate term debt instrument (bond)?

A

maturity date 2-10 years

51
Q

what is a long term debt instrument (bond) ?

A

maturity of 10 or more years

52
Q

what type of underwriting is generally used for general obligation issues?

A

competitive bid

53
Q

what is current yield? (current market price for the bond)

A

bond’s coupon and the price paid for the bond

54
Q

Municipal bonds with interest rates that are reset at specific intervals or after a specific event has occurred are called

A

Variable rate bonds

55
Q

negotiable certificates of deposit characteristics

A

have a maturity of 1 year or less

56
Q

characteristic of zero-coupon bonds (3)

A
  1. purchased at a discount from par 2. pay no current income 3. more volatile than coupon bonds
    pay par at maturity, no semiannual interest, but their ‘phantom income’ is taxed each year
57
Q

A bond paying a 10% coupon rate is trading at a discount. The current yield will be

A

Higher than the coupon rate (When bond prices decline (discount bonds), yields rise)

58
Q

what is a treasure receipt? T-Receipt

A

A treasury receipt is a zero-coupon security

59
Q

who creates treasure receipts? T-Receipt

A

broker - dealers

60
Q

what type of Treasury securities are Treasury Receipts backed by?

A

T-notes or T-bonds

61
Q

what are the two Treasury Securities?

A

T- notes and T-bonds

62
Q

what is Commercial paper and what is it used for?

A

unsecured, short-term debt up to 9 months in maturity. It is used by corp. to fill short-term cash flow needs

63
Q

what is A bankers’ acceptance?

A

debt securities used to finance foreign trade

64
Q

what are Mortgage bonds?

A
65
Q

what are Debentures?

A

bond issuers that are not secured by collateral
A debenture is an unsecured debt instrument. It is backed solely by the issuer’s full faith, credit, and promise to pay

66
Q

what is Collateral trust certificate?

A

backed by underlying assets or collateral (securities of another company.)

67
Q

what is Subordinated debenture?

A

have a secondary claim to assets in the event of bankruptcy (behind straight debentures)

68
Q

What is an Income bond?

A

no legal obligation to make interest payments and will only pay interest when the corporation earns enough income to do so

69
Q

how often do GNMA pass-through certificates pay out interest and principal

A

Monthly

70
Q

An investor that owns an 8% bond would receive how much on each interest payment date?

A

The investor will receive $80 per year ($1,000 x .08), but only $40 per payment since the bond pays interest semiannually.

71
Q

When interest rates increase, bond prices in the secondary market decrease

A

because new bonds will be issued at a higher interest rate, so the existing bonds (with the lower interest rates) are less attractive and drop in price
The net asset value of a bond fund will rise and fall based on interest rates.

72
Q

comparing Treasury bills and Treasury receipts

A

Both securities are sold at a discount and pay interest at maturity

73
Q

unqualified opinion, this means:

A

everything is legally in order and there are no problems with the issue

74
Q

The maximum maturity for tax-exempt commercial paper is:

A

he maximum maturity is 270 days (9 months), and they are issued at a discount to par

75
Q

U.S. government bonds are taxable at the federal level, but they are state tax exempt. Municipal bonds are exempt from federal tax, but subject to state tax, unless it is your state of residence, in which case, they will be tax exempt at the state level as well.

A
76
Q

The relationship between prices and yields for outstanding corporate bonds when interest rates are changing is

A

A
Inverse
As yields rise, the prices of outstanding debt instruments will fall. As yields fall, the prices of outstanding debt instruments will rise. Therefore, the relationship is an inverse one

77
Q

Who issues negotiable CDs?

A

Negotiable CDs are issued by banks.

78
Q

If interest rates increase, the price of a bond will go down, making its current yield higher than the nominal yield.

A

Current yield will increase
If interest rates increase, the price of a bond will go down, making its current yield higher than the nominal yield.

79
Q

Which T-bill is not auctioned weekly?

A

52 week

80
Q

Which of the following statements regarding Eurodollars in not true

A

Eurodollars are registered with the SEC

81
Q
A

SIE UNIT 1 (3 decks)

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