Final (Ch. 6) Flashcards Preview

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Flashcards in Final (Ch. 6) Deck (29)
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1
Q

Coupons

A
  • Stated Interest payment made on a bond
2
Q

Face Value (Par Value)

A
  • The principal amount of a bond
3
Q

Coupon Rate

A
  • The annual coupon/the face value
4
Q

Yield to Maturity (YTM)

A
  • The rate required in the market on a bond
5
Q

Interest Rate Risk

A
  1. All other things being equal, the longer the time to maturity, the greater the interest rate risk.
  2. All other things being equal, the lower the coupon rate, the greater the interest rate risk.
6
Q

Indenture

A
  • The written agreement between the corporation and the lender detailing the terms of the debt issue
7
Q

Registered Form

A
  • The registrar of a company records who owns each bond, and bond payments are made directly to the owner of record
8
Q

Bearer Form

A
  • A bond issue w/out record of the owner’s name; payment is made to whomever holds the bond
9
Q

Debenture vs. Note

A
  • Debenture - Unsecured debt, usually with a maturity of 10 years or more
  • Note - Unsecured debt, usually with a maturity of under 10 years
10
Q

Sinking Fund

A
  • An account managed by the bond trustee for early bond redemption
11
Q

Call Provision

A
  • Agreement giving the issuer the option to repurchase a bond at a specific price prior to maturity
12
Q

Call Premium

A
  • The amount by which the call price exceeds the par value
13
Q

Deferred Call Provision

A
  • Bond call provision prohibiting the company from redeeming the bond prior to a certain date
14
Q

Call Protected

A
  • Bond during period in which it cannot be redeemed by the issuer
15
Q

Protective covenant

A
  • A part of the indenture limiting certain actions that might be taken during the term of the loan, usually to protect th elender’s interest
16
Q

Zero Coupon Bonds

A
  • A bond that makes no coupon payments, and thus is initially priced at a deep discount
17
Q

Bid vs. Asked Price

A
  • Bid - The price a dealer is willing to pay for a security

- Asked Price - The price a dealer is willing to take for a security

18
Q

Bid-Ask Spread

A
  • The difference between the bid price and the asked price
19
Q

Clean Price

A
  • The price of a bond net of accrued interest; this is the price that is typically quoted
20
Q

Dirty Price

A
  • The price of a bond including accrued interest, also known as the full or invoice price. This is the price the buyer actually pays
21
Q

Real Rates

A
  • Interest Rates or rates of return that have been adjusted for inflation
22
Q

Nominal Rates

A
  • Interest rates or rates of return that have not been adjusted for inflation
23
Q

Term Structure of Interest Rates

A
  • The relationship between nominal interest rates on default-free, pure discount securities and time to maturity; that is, the pure time value of money
24
Q

Inflation Premium

A
  • The portion of a nominal interest rate that represents compensation for expected future inflation
25
Q

Interest Rate Risk Premium

A
  • The compensation investors demand for bearing interest rate risk
26
Q

Treasury Yield Curve

A
  • A plot of the yields on Treasury notes and bonds relative to maturity
27
Q

Default Risk Premium

A
  • The portion of a nominal interest rate or bond yield that represents compensation for the possibility of default
28
Q

Tax-ability Premium

A
  • The portion of a nominal interest rate or bond yield that represents compensation for unfavorable tax status
29
Q

Liquidity Premium

A
  • The portion of a nominal interest rate or bond yield that represents compensation for lack of liquidity