Securities Markets - 6

The SEC defines large investors as those with assets of ______ or more, or income above ________ per year for families in the last two years.

$1 mil ::: $300k

Coupon rates on U.S. Treasury notes and bonds are set at multiples of ______ percent when issued.

.125

The par value of a Treasury security to be resold as a STRIP must be in an amount that will provide semiannual coupon payments of ______ or a multiple of ______.

100 :::: 100

The components of a Treasury STRIP are issued to investors in minimum denominations of ______ or in multiples of ______.

100 ::::: 100

Over the period 1994 to 2019, approximately ______ to ______ percent of the U.S. national debt consisted of Treasury notes and bonds.

40 :::: 60

Treasury notes (T-notes) and bonds (T-bonds)

Long-term securities issued by the U.S. Treasury to finance the national debt and other federal government expenditures.

Most secondary bond market trades are carried out on ______ including virtually all _______ transactions.

OTC market ::: large

The _______ is the yield to maturity on the Treasury STRIP using the ________ in the calculation.

asked yield ::: ask price

If the terms of repayment are not met by the bond issuer (borrower), the bond holder (investor) has a claim on the ______ of the bond issuer.

assets

A sinking fund provision is _______ to investors, so bonds with a sinking fund provision generally have _______ yields than bonds without.

attractive ::: lower

The bond trustee is frequently a

bank trust department

With ________ underwriting, the investment bank makes no guarantees but acts as a placing or distribution agent for the bonds and collects a fee.

best efforts

Foreign bonds are long-term bonds issued outside of the issuer's home country and are denominated in the currency of the country in which the

bonds are issued

debentures

bonds backed solely by the general credit of the issuing firm and unsecured by specific assets or collateral

equipment trust certificates

bonds collateralized with tangible non-real estate property

term bonds

bonds in which the entire issue matures on a single date

bearer bonds

bonds on which coupons are attached. the bondholder presents the coupons to the issuer for payments of interest when they come due

callable bonds

bonds that allow the issuer to force the bondholder to sell the bond back to the issuer at a price above par value (Call price)

mortgage bonds

bonds that are issues to finance specific projects that are pledged as collateral for the bond issue

stock warrants

bonds that give the bondholder an opportunity to purchase common stock at a specified price up to a specified date

sinking fund provisions

bonds that include a requirement that the issuer retire a certain amount of the bond issue each year

serial bonds

bonds that mature on a series of dates, with a portion of the issue paid off on each

convertible bonds

bonds that may be exchanged for another security of the issuing firm at the discretion of the bondholder

Many corporate bond issues include a _______ in their indentures which allows the issuer to require the bond holder to sell the bond back to the issuer at a set price above the par value of the bond.

call provision

Changes in the value of bond indexes can be used by bond traders to evaluate __________ of investing in bonds of different types and maturities.

changes in the attractiveness

In the United States, the quoted price for a Treasury note or bond is the _______ which _______ include the accrued interest.

clean price ::: does not

The major issuers of bond market securities (borrowers) are

corporations & governments

The biggest issuers of debt in the global debt markets from 1996 through 2018 were

corporations and financial institutions

Most bonds are ______ debt instruments.

coupon paying

When an investor buys a Treasury note or bond between coupon payments, the buyer must compensate the seller for any portion of the ______ that has ______ between the last coupon payment and the settlement date.

coupon payment ::: accrued

Bond ratings provide investors with a ranking of the ________ of a bond issue.

default risk

The spread measures the return premium a bond earns to compensate the investor for _______, _______ and ________.

default risk, liquidity risk, and special bond provisions

bond indenture covenants

define the rules and restrictions within the bond indenture

Under the __________ the repayment of sovereign debt cannot be forced but is subject to rescheduling, interest rate reduction, or even repudiation.

doctrine of sovereign-immunity

The biggest issuers of both fixed rate and floating rate debt in most years are

financial institutions

samurai bonds

foreign bonds issued in japan

bulldog bonds

foreign bonds issued in the UK

yankee bonds

foreign bonds issued in the US

Municipal bonds backed by the full faith and credit of the issuer are called ______ bonds. Governments usually rely on ______ to make payments on these bonds.

general obligation ::: tac collections

specs of a eurobond

generally issued in denominations of $5k and $10k, paying interest annually using a 360 day year, bearer bond, the issuer chooses the currency of denomination

Treasury STRIPS are created by and sold to investors through

government securities brokers and dealers

sovereign bonds

government-issued, foreign currency-denominated debt

Bond insurance guarantees that payment will be made to investors in the event the issuer defaults. Bond insurers generally have a ______ credit rating than the bond ______.

higher ::: issuer

Due to lack of information on the private placement issuers, interest rates paid to holders of privately placed bonds tend to be ______ interest rates paid on publicly placed issues.

higher than

major purchasers of capital (bond) market securities

households, businesses, government units, and foreign investors

Interest rates on all bonds are affected by _______ and _______, which is typically measured using Treasury security rates.

inflation ::: real risk-free rate

Currently, only ______ and _______ as defined by the SEC can participate in private placements of bonds.

institutional investors & large investors

Bonds backed by insurance will have the credit rating of the ______ and a substantially ______ interest rate than if uninsured.

insurer ::: lower

When a large state or local government issues municipal bonds, many _______ are interested in underwriting the bonds and the bonds can generally be sold in a _______ market.

investment banks ::: national

Each of the components of the STRIPS are often referred to as "Treasury zero bonds" because

investors in the individual components receive only the single stripped payments in which they invest (they can either invest in the coupon payments or the principal)

With best efforts underwriting, the _______ assumes the risk that the entire bond issue might not be sold.

issuing firm

Issuers of privately placed bonds tend to be _______ than public issuers.

less well-known

Bond insurance increases the ______ of bonds by making it easier to sell them on the secondary market.

liquidity

T-notes and bonds duration

long duration (original maturities of over 10 years)

Eurobonds are ______ bonds issued and sold outside of _______.

long-term ::: the country of their currency

corporate bonds

long-term bonds issued by corporations, minimum denomination on publicly traded corporate bonds is $1k, and coupon-paying corporate bonds generally pay interest semi-annually

The only protection to creditors under the doctrine of sovereign-immunity is threat of _______ and a lowering of the _______.

loss of credibility ::: country's sovereign debt rating

International sovereign bonds have historically exhibited ________ in returns with U.S. and international stocks

low correlation

Sovereign debt issued by lesser developed countries tends to have a ______ credit rating due to increased _______ risks.

lower ::: economic & political

A bond index reflects both the _________ plus _________ on a particular type of bond

monthly capital gain/loss :: coupon interest paid

the 3 major bond rating agencies are

moody's , standard & poor's (S&P), and fitch ratings

The U.S. Treasury issues Treasury notes and bonds to finance ______ and ______.

national debt & other government expenditures

The characteristics of international bond markets are that bonds are (choose four)

offered to investors in different countries, underwritten by an international syndicate, traded outside the jurisdiction of any single country, and offered in unregistered form

secondary market for eurobond

over-the-counter market

inflation-indexed bonds interest payment

payments are based on inflation-adjusted principal value of the security (semi-annual payment)

t-notes and bonds prices are quotes as ....

percentages of the face value

The price of a STRIP security is the ________ of the face value of the STRIP discounted using the _________ and ________.

present value ::: yield-to-maturity ::: semiannual compounding

Treasury Inflation-Protected Securities, or TIPS

provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index

The invention of the Eurobond was motivated by the desire to avoid ______ and _______ on debt securities issued by firms in ______

regulation ::: high taxes ::: the US

Private placements of bonds are unregistered but there are restrictions on the _______ of the bonds.

resale

Stock warrants are attached to bonds by ______ issuers to make the bond more attractive to investors and ______ the interest rate that must be paid.

risky ::: reduce

Debenture holders generally receive their promised payments only after all ________ debt holders have been paid.

secured

dirty price

the full price of a T-note/bond = the sum of the purchase price(clean price) + accrued interest (at settlement, the buyer must pay the seller this amount)

frim commitment underwriting

the issue of securities by an investment bank in which the investment bank guarantees the issuer a price for newly issues securities by buying the whole issue at a fixed price from the issuer. It then seeks to resell these securities to suppliers of funds (investors) at a higher price

bond trustee

the representative of bondholders who monitors compliance with the bond indenture

Treasury STRIPS allow investors to match their ______ with the ______ of the STRIP security.

time preference for funds :::: maturity date

True or false: Treasury notes and bonds trade in very active secondary markets.

true

Call provisions are _______ to bond holders so callable bonds generally have ______ yields than non-callable bonds.

unattractive ::: higher

With firm commitment underwriting, the _______ assumes the risk that the entire bond issue might not be sold.

underwriter

municipal bonds are typically issued in minimum denominations of

5,000

The largest U.S. city to ever suspend payments on its unsecured debt and declare bankruptcy was

Detroit

eurobond primary market

investment banks

Municipal bonds pay coupons

semiannually

Municipal bonds are issued by ______ and ______ governments to fund a temporary imbalance between expenditures and receipts, or to finance long-term capital outlays.

state & local

Because general obligation bonds rely upon tax revenues for repayment, ______ is usually required.

taxpayer approval

Most corporate bonds are ______ bonds, meaning that the entire issue matures on a single date.

term

accrued interest

that portion of the coupon payment accrues between the last coupon payment and the settlement day

Municipal bonds are not free from default risk. Defaults on municipal bonds tend to rise and fall with

the economy

The two secondary markets for the trading of corporate bonds are ______ and ______

the exchange market & the OTC market

bond indenture

the legal contract that specifies the rights and obligations of the bond issuer and the bond holders

subordinated debentures

unsecured debentures that are junior in their rights to mortgage bonds and regular debentures

registered bonds

with a registered bond, the owner's identification information is recorded by the issuer and the coupon payments are mailed to the registered owner

Each STRIP security must be valued as a ________ with maturity determined by its original _______.

zero-coupon bond ::: payment date

The interest rate spread is the difference between the yield on ________ and the yield on ___________.

a bond ::: a treasury security of similar maturity

The initial primary market sale for municipal bonds occurs through which of the following methods?

a private placement to a small group of investors or a public offering using an investment bank as underwriter

The initial primary market sale for corporate bonds occurs through which of the following method

a public offering using an investment bank as underwriter & a private placement to a small group of investors

Rounding the stop-out yield for a Treasury note or bond down to the nearest 0.125 percent ensures that the issue will sell at

a slight discount

STRIPS

a treasury security in which the periodic interest payment (semi-annual) is separated from the final principal payment

general obligations (GO) bonds

a type of municipal bond that is backed by the full faith of the credit of the issuer

revenue bonds

a type of municipal bond that is sold to finance a specific revenue-generating project, backed by cash flows from that project