finance ch 7&8 terms

deferred call provision

A call provision prohibiting the company from redeeming a bond prior to a certain date

protective covenant

A part of the indenture limiting certain actions that might be taken during the term of the loan, usually to protect the lender's interest.

sinking fund

An account managed by the bond trustee for early bond redemption

call provision

An agreement giving the corporation the option to repurchase a bond at a specified price prior to maturity.

discount; coupon

Term structure is based on pure _______ bonds Yield curve - based on ________ bearing issues

floor brokers

NYSE members who execute customer buy and sell orders

registered form

The form of bond issue in which the registrar of the company records ownership of each bond; payment is made directly to the owner of record

primary market

The market in which NEW securities are originally sold to investors.

taxable premium

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

face value; par value

The principal amount of a bond that is repaid at the end of the term. Also called: usually 1000 dollars for corporate bonds govt. bonds usually have much larger values

indenture

The written agreement between the corporation and the lender detailing the terms of the debt issue.

long; low

______ term bonds and ____ coupon bonds have HIGH interest rate risk

short; high

______ term bonds and ____ coupon bonds have LOW interest rate risk

callable

____________ bonds can be redeemed by the issuer at some point prior to its maturity

inverted

a _______ yield curve is downward-sloping: long-term yields are lower than short-term yields

normal

a _______ yield curve is upward-sloping: long-term yields are higher than short-term yields

tax deductible

a benefit of debt

inventory

a broker has no ______ like a dealer does

coupon, current coupon period

accrued interest = ______ amount * (days since last payment/ days in _____ _____ ______

broker

an agent who arranges a transaction between a buyer and a seller of equity securities is called a _____

default

bond ________ risk is also known as credit risk

notes

bonds maturing between one and ten years

bills

bonds maturing in less than one year

dirty, invoice

cash price, otherwise known as ______ or ______

implicit interest

change in the bonds value for the year

call premium

difference between call price and stated value; "a $1000 face value bond can be redeemed early at the issuers discretion for $1030, plus any accrued interest. The additional $30 is called the:

liquidity premium

he portion of a nominal interest rate or bond yield that represents compensation for lack of liquidity

yes

is it true that a U.S treasury security is risk-free?

12

long term corporate bond is over ___ years

over-the-counter market

no particular place where buying and selling occur; dealers around the country and world are connected electronically

nominal

pension funds would be concerned with ____ rates

commission broker

person on the floor who executes buy and sell orders on behalf of customers

interest rate risk

possibility of a reduction in the value of a bond, resulting from a rise in interest rates

discount bond

price < par value

premium bond

price > par value

DMM

promote market liquidity NYSE members who act as dealers in particular stocks. Formerly known as "specialists."

term structure of interest rate

relationship between the interest rate and the investment term is called

g

represents capital gains yield as used in the dividend growth model

default risk

represents compensation for the possibility of not making payments on a bond - demand a higher yield

5

short term corporate bond is less than ___ years

municipal

states and local govts. borrow money by selling bonds and notes called,

bearer form

the form of bond issue in which the bond is issued without record of the owner's name; payment is made to whomever holds the bond. difficult to recover if lost or stolen company doesnt know who owns its bonds and cannot notify them of important events

secondary

the market in which previously issued securities are traded AMONG investors

state

treasury issues are exempt from ______ income taxes

debenture

unsecured debt with original maturity of over 10 years

notes

unsecured debt with original maturity under 10 years

before a recession

when do we see an inverted yield curve?

treasury

which has a greater interest rate risk: a 30 year treasury bond or a 30 year corporate bond?