CH 10 INV

To earn a high rating from the bond agencies a company would want to have

-A low debt-to-equity ratio -A high quick ratio

TIPS

Commonly called inflation-indexed treasury securities

Bonds that would be called in an era of low interest rates

Coupon bonds selling at a premium

BBB rated bonds

considered investment grade by S&P

TIPS offer investors inflation protection by ____ by the inflation rate each year

increasing both the par value and the coupon payment

A debenture is ____

unsecured

Puttable bond

Gives the bondholder the right to cash in the bond before maturity at a specific price after a specific date

Callable bond

Gives the issuer an option to retire the bond before maturity at a specific price after a specific date

When will a bond sell at a premium to par?

When its coupon rate is greater than its yield to maturity

Liquidity preference theory requires

a higher yield on long-term bonds than on short-term bonds

If you are holding a discount bond, you must expect a ____ each year until maturity

capital gain

If you are holding a premium bond, you must expect a____ each year until maturity

capital loss

Current yield

computed as the ratio of the annual coupon payment to the market price

Floating rate bonds have a _____ that is adjusted with current market interest rates

coupon rate

The expectations theory says that if the yield curve is downward sloping, short-term interest rates should ____ in the future

decrease

Sinking funds are commonly viewed as protecting the ___ of the bond

holder

TIPS are an example of

indexed bonds

C rated bonds

junk bonds

The ___ the maturity of the bond and the ____ the coupon, the greater the sensitivity of the bond's price to interest rate changes

longer, lower

Difference between treasury notes and bonds

maturity at issue

Mortgage bond

secured by property owned by the firm

Invoice price of a bond

stated or flat price in a quote sheet plus accrued interest

Yields on municipal bonds are generally lower than yields on similar corporate bonds because of differences in ___

taxation

Indenture

the document that defines the contract between the bond issuer and the bondholder

Convexity relates to

the shape of the bond price curve with respect to interest rates