Chapter 15 Investing in Bonds

Mortgage bond

A corporate bond secured by various assets of the issuing firm.

General Obligation Bond

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

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.

Debenture

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

Bearer Bond

A bond that is not registered in the investor's name.

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 payment, and is redeemed for its face value at maturity.

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.

Bond Indenture

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

Bond Ladder

A strategy where investors divide their investment dollars among bonds that mature at regular intervals in order to balance risk and return.

Yield To Maturity

A yield calculation that takes into account the relationship among a bond's maturity value, the time to maturity, the current price, and the dollar amount of interest.

Subordinated debenture

An unsecured bond that gives bondholders a claim secondary to that of other designated bondholders with respect to interest payments, repayment, and assets.

Serial Bonds

Bonds of a single issue that mature on different dates.

Current Yield

Determined by dividing the annual dollar amount of income generated by an investment by the investment's current market value.

Maturity Date

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

Face Value

The dollar amount the bondholder will receive at the bond's maturity.

Yield

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