BE Personal Finance - Chapter 15

Debenture

A bond that is backed only by the reputation of the issuing corporation

Provisions for Repayment (call feature, sinking fund, and serial bonds)

Call Feature - a feature that allows the corporation to call in, or buy, outstanding bonds from current bondholders before the maturity date. Sinking Fund - A fund to which annual or semi-annual deposits are made for the purpose of redeeming a bond issue. Serial Bond - Bonds of a single issue that mature on different dates.

Bond Ratings

High-Grade AAA - bonds that are judged to be of the highest quality AA - Bonds that are judged to be of high quality by all standards. Together with the first group, they comprise what are generally known as high-grade bonds Medium Grade - A - Bonds that possess many favorable investment attributes and are to be considered upper-medium-grade obligations BBB - Bonds that are considered medium-grade obligations. They may be subject to moderate credit risk. Speculative - BB - Bonds that are judged to have speculative elements; their future cannot be considered well assured. B - Bonds that generally lack characteristics of a safe investment and are subject to high credit risk. Problem/Default CCC - Bonds that are of poor standing, vulnerable, and subject to very high credit risk. CC - Bonds that represent obligations that are highly speculative and near default. C - Moody's rating given to bonds that are typically in default and regarded as having extremely poor prospects for recovery of principal or interest. C - Standard & Poor's rating given to bonds that are highly vulnerable to nonpayment. D - Bond issues in default

Characteristics of corporate bonds ( face value, maturity date, bond indenture, and trustee)

The Face value: face value is the dollar amount the bondholder will receive at the bond maturity. Maturity date: At the maturity date, the bondholder returns the bond to the corporation and receives cash equal to the bond's face value. Bond indenture: is a legal document that details all the conditions relating to bond issue. Trustee is a financially independent firm that acts as the bondholders' representative

U.S. Treasury Bills, Notes, and Bonds

U.S. Treasury Bills - sometimes called a T-Bill is sold in a minimum unit of $100 with additional increments of $100 above the minimum. Maturity may be as short as a few days or as long as 1 year. Notes - issues in $100 units with a maturity of more that 1 year but not more than 10 years. Bonds- issued in units of $100 that have a 30-year maturity.

State & local government securities (municipal bond, general obligation bond, and revenue bond)

municipal bond - A debt security issued by a state or local government general obligation bond - a bond backed by the full faith, credit, and unlimited taxing power of the government that issued it. revenue bond - a bond that is repaid from the income generated by the project it is designed to finance