FIN CH. 7

Pataasin ang iyong marka sa homework at exams ngayon gamit ang Quizwiz!

maturity

the number of years until the face value is paid is called the bond's time to _____.

creditor/lender, debtor/borrower

the person or firm making the loan is called the _____. the corporation borrowing the money is called the _____.

par value bond

a bond that sells for its face value is called a ______.

long-term debt

debt securities with maturities of more than one year

liquidity premium

if you wanted to sell a bond quickly, you would probably not get as good a price as you could otherwise. investors prefer liquid assets to illiquid ones, so they demand a _____.

lower, greater

all other things being equal, the ____ the coupon rate, the ____ the interest rate risk.

debenture

an unsecured bond, for which no specific pledge of property is made.

treasury yield curve

each day, The Wall Street Journal provides a plot of Treasury yields relative to maturity. this plot is called the _____ and the shape of it reflects the term structure of interest rates.

seniority, senior or junior

in general terms, ____ indicates preference in position over other lenders, and debts are sometimes labeled as ____ or ____ to indicate it.

bid price, asked price

in general, in any over the counter or dealer market, the ____ represents what a dealer is willing to pay for a security, and the _____ is what a dealer is willing to take for it.

interest rate risk premium

longer-term bonds have much greater risk of loss resulting from changes in interest rates than do shorter-term bonds. investors recognize this risk, and they demand extra compensation in the form of higher rates for bearing it. this compensation is called the ______.

unfunded debt

short-term debt is sometimes referred to as _____.

indenture

the written agreement between the corporation (the borrower) and its creditors.

deed of trust

an indenture is sometimes referred to as the ____.

debt

____ is not an ownership interest in the firm; creditors generally do not have voting power.

mortgage securities

_____ are secured by a mortgage on the real property of the borrower. the property involved is usually real estate- for example, land or buildings.

income bonds

_____ are similar to conventional bonds, except that coupon payments depend on company income. coupons are paid to bondholder only if the firm's income is sufficient.

call provision

a ____ allows the company to repurchase part or all of the bond issue at stated prices over a specific period.

protective covenant

a _____ is that part of the indenture or loan agreement that limits certain actions of a company might otherwise wish to take during the term of a loan.

zero coupon bonds

a bond that pays no coupons at all must be offered at a price that is much lower than its stated value. such bonds are called ______.

discount bond

a bond that sells for less than face value is said to be a ______.

premium bond

a bond that sells for more than face value is said to be a ______.

current yield

a bond's annual coupon divided by its price. only considers the coupon portion of your return; it does not consider the built-in gain/loss from the price discount/premium

deferred call provision, call protected

a company might be prohibited from calling its bonds for the first 10 years. this is a _____. during this period of prohibition, the bond is said to be _____.

longer, greater

all other things being equal, the _____ the time to maturity, the ____ the interest rate risk.

bearer form

alternative to registered form, the bond could be in _____. this means that the certificate is the basic evidence of ownership, and the corporation will "pay the bearer". ownership is not otherwise recorded.

sinking fund

an account managed by the bond trustee for the purpose of repaying the bonds. the company makes annual payments to the trustee for the purpose of repaying the bonds.

real rate

an interest rate that has been adjusted for inflation.

nominal rate

an interest rate that has not been adjusted for inflation.

registered form

corporate bonds are usually in _____. this means that the company has a registrar who will record the ownership of each bond and record any changes in ownership.

short-term debt

debt securities with maturities of one year or less

how sensitive its price is to interest rate changes

how much interest rate risk a bond has is dependent upon what?

the time to maturity and the coupon rate

how sensitive a bond's price is to interest rate changes depends on what two things?

clean price

in dealing with bond price quotes, interest is deducted to arrive at the quoted price. this quoted price is called the _____.

dirty price

in dealing with bond price quotes, the price you actually pay is called the _____. this price includes the accrued interest.

default risk premium

investors recognize that issuers other than the treasury may or may not make all the promised payments on a bond, so they demand a higher yield as compensation for this risk. this compensation is called the _____.

notes, bonds

issues with an original maturity of 10 years or less are often called ____. longer-term issues are called ____.

taxability premium

municipal bonds are free from most taxes and, as a result, have much lower yields than taxable bonds. investors demand the extra yield on a taxable bond as compensation for the unfavorable tax treatment. this compensation is called the _____.

equity

one of the costs of issuing debt is the possibility of financial failure. this possibility does not arise when ____ is issued.

coupons

regular interest payments that a corporation promises to make every year until the bond's time to maturity are called the bond's _____. (it will be equal to the interest rate multiplied by the face value)

equity securities and debt securities

securities issued by corporations may be classified roughly as _____ and _____.

collateral

securities that are pledged as security for payment of debt.

blanket mortgage

sometimes mortgages are on specific property, such as a railroad car. more often, a _____ will be used which pledges all the real property owned by the company.

municipal

state and local governments borrow money by selling notes and bonds. such issues are called _____ notes and bonds.

maturity

the ____ of a long-term debt instrument is the length of time the debt remains outstanding with some unpaid balance.

fisher effect

the ____ tells us the relationship between nominal rates, real rates, and inflation.

face value

the amount that will be repaid at the end of the loan is called the bond's _____.

coupon rate

the annual coupon divided by the face value is called the _____.

dividends paid

the corporation's payment of interest on debt is considered a cost of doing business and is fully tax deductible. _____ to stockholders are NOT tax deductible.

bid-ask spread

the difference between the bid price and the ask price is called the _____, and it represents the dealer's profit.

call premium

the difference between the call price and the stated value is the _____.

inflation premium

the prospect of future inflation strongly influences the shape of the term structure. investors thinking about lending money for carious lengths of time recognize that future inflation erodes the value of dollars that will be returned. as a result, investors demand compensation for this loss in the form if higher nominal rates. this compensation is called the ______.

term structure of interest rates

the relationship between short and long-term interest rates is known as the ______, which tells us what nominal interest rates are on default-free, pure discount bonds of all maturities. in other words, it tells us the pure time value of money for different lengths of time.

interest rate risk

the risk that arises for bond owners from fluctuating interest rates is called _____.

yield to maturity

to determine the value of a bond at a particular point in time, we need to know the number of periods remaining until maturity, the face value, the coupon, and the market interest rate for bonds with similar features. this rate rate required in the market on a bond is called the bond's _____.

floating rate bonds

with ______, coupon payments are adjustable; the adjustments are tied to an interest rate index.


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