Week 3 - Bond Markets Flashcards
What is the function of a capital market?
To bring together borrowers and suppliers of long term funds.
What is yield to maturity?
The interest rate that makes the price of a security equal to the present value of the coupon payments and securities FV.
Lower YTM = Higher price
That one is a freebie
A freebie?! Gosh thanks Hugo, I’m having such a good time. I love studying, it’s so much fun and I definitely am not incredibly bored.
When government bonds are issued, how are bids accepted?
In ascending order of yield, which is of course another way of saying highest to lowest price until the stock of bonds is depleted.
What is a Treasury Indexed Bond?
Interest is paid quarterly and the principal amount upon which the coupon payments are based and changes with the inflation rate
What is a Corporate Bond?
A debt contract requiring borrowers to make periodic payments of interest and to repay principal at the maturity date.
What are the two types of Corporate Bond?
Unsecured Note
Debenture
What is an Unsecured Note?
A corporate bond for which there is no underlying specified security as collateral in the case of default.
What is a Debenture? What are the two types of Debenture?
Debentures are corporate bonds that give the holders the right to the proceeds of the sale of assets in the event the bond defaults. The two forms are fixed and floating. Fixed debentures always have the right to the proceeds, floating debentures have the right provided all fixed debenture holders have already been reimbursed. Both parties have equal claim to assets not specified under the debenture.
Are Hybrid securities debt or equity?
A bit of both
What are the 3 types of over the counter market?
1) Money Market
2) Bond Market
3) Foreign Exchange Market
What is Securitization?
The process in which certain types of assets are pooled so that they can be repackaged into interest bearing securities.
