FIN. C.11

convertible bond

a bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock.

growth

investors' investments will increase in value.

capital gain

results when you sell a municipal bond before maturity and at a profit

overall risk factor's four components

1) inflation risk; 2) interest rate risk; 3) business failure risk; 4) market risk.

investors purchase bonds for three reasons:

1) interest income; 2) possible increase in value; 3) repayment at maturity.

Treasury bill

T-bill; sold in a minimum unit of $100 with additional increments of $100 above the minimum.

general obligation bond

a bond backed by the full faith, credit, and unlimited taxing power of the government that issued it.

debenture

a bond that is backed only by the reputation of the issuing corporation.

registered coupon bond

a bond that is registered for principal only, and not for interest.

registered bond

a bond that is registered in the owner's name by the issuing company.

revenue bond

a bond that is repaid from the income generated by the project it is designed to finance.

zero-coupon bond

a bond that is sold at a price far below its face value, makes no annual or semiannual interest payments, and is redeemed for its face value at maturity.

mortgage bond

a corporate bond secured by various assets of the issuing firm; secured bond.

corporate bond

a corporation's written pledge to repay a specified amount of money with interest.

municipal bond

a debt security issued by a state or local government.

call feature

a feature that allows the corporation to call in, or buy, outstanding bonds from current bondholders before the maturity date.

trustee

a financially independent firm that acts as the bondholders' representative.

sinking fund

a fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue.

speculative investment

a high-risk investment made in the hope of earning a relatively large profit in a short time.

bond indenture

a legal document that details all of the conditions relating to a bond issue.

line of credit

a short-term loan that is approved before the money is actually needed.

emergency fund

an amount of money you can obtain quickly in case of immediate need.

serial bonds

bonds of a single issue that mature on different dates.

current yield

determined by dividing the yearly dollar amount of interest by the bond's current price.

maturity date

for a corporate bond, the date on which the corporation is to repay the borrowed money.

Treasury note

issued in $100 units with a maturity of more than 1 year but not more than 10 years.

Treasury bond

issued in a minimum units of $100 and has a 30-year maturity.

Treasury inflation-protected securities (TIPS)

sold in a minimum units of $100 with additional increments of $100 above the minimum.

liquidity

the ability to buy or sell an investment quickly without substantially affecting the investment's value.

asset allocation

the process of spreading your assets among several different types of investments to lessen the risk.

yield

the rate of return earned by an investor who holds a bond for a stated period of time.

government bond

the written pledge of a government or a municipality to repay a specified sum of money, along with interest.