finance ch 7&8 terms
deferred call provision
A call provision prohibiting the company from redeeming a bond prior to a certain date
protective covenant
A part of the indenture limiting certain actions that might be taken during the term of the loan, usually to protect the lender's interest.
sinking fund
An account managed by the bond trustee for early bond redemption
call provision
An agreement giving the corporation the option to repurchase a bond at a specified price prior to maturity.
discount; coupon
Term structure is based on pure _______ bonds Yield curve - based on ________ bearing issues
floor brokers
NYSE members who execute customer buy and sell orders
registered form
The form of bond issue in which the registrar of the company records ownership of each bond; payment is made directly to the owner of record
primary market
The market in which NEW securities are originally sold to investors.
taxable premium
The portion of a nominal interest rate or bond yield that represents compensation for unfavorable tax status
face value; par value
The principal amount of a bond that is repaid at the end of the term. Also called: usually 1000 dollars for corporate bonds govt. bonds usually have much larger values
indenture
The written agreement between the corporation and the lender detailing the terms of the debt issue.
long; low
______ term bonds and ____ coupon bonds have HIGH interest rate risk
short; high
______ term bonds and ____ coupon bonds have LOW interest rate risk
callable
____________ bonds can be redeemed by the issuer at some point prior to its maturity
inverted
a _______ yield curve is downward-sloping: long-term yields are lower than short-term yields
normal
a _______ yield curve is upward-sloping: long-term yields are higher than short-term yields
tax deductible
a benefit of debt
inventory
a broker has no ______ like a dealer does
coupon, current coupon period
accrued interest = ______ amount * (days since last payment/ days in _____ _____ ______
broker
an agent who arranges a transaction between a buyer and a seller of equity securities is called a _____
default
bond ________ risk is also known as credit risk
notes
bonds maturing between one and ten years
bills
bonds maturing in less than one year
dirty, invoice
cash price, otherwise known as ______ or ______
implicit interest
change in the bonds value for the year
call premium
difference between call price and stated value; "a $1000 face value bond can be redeemed early at the issuers discretion for $1030, plus any accrued interest. The additional $30 is called the:
liquidity premium
he portion of a nominal interest rate or bond yield that represents compensation for lack of liquidity
yes
is it true that a U.S treasury security is risk-free?
12
long term corporate bond is over ___ years
over-the-counter market
no particular place where buying and selling occur; dealers around the country and world are connected electronically
nominal
pension funds would be concerned with ____ rates
commission broker
person on the floor who executes buy and sell orders on behalf of customers
interest rate risk
possibility of a reduction in the value of a bond, resulting from a rise in interest rates
discount bond
price < par value
premium bond
price > par value
DMM
promote market liquidity NYSE members who act as dealers in particular stocks. Formerly known as "specialists."
term structure of interest rate
relationship between the interest rate and the investment term is called
g
represents capital gains yield as used in the dividend growth model
default risk
represents compensation for the possibility of not making payments on a bond - demand a higher yield
5
short term corporate bond is less than ___ years
municipal
states and local govts. borrow money by selling bonds and notes called,
bearer form
the form of bond issue in which the bond is issued without record of the owner's name; payment is made to whomever holds the bond. difficult to recover if lost or stolen company doesnt know who owns its bonds and cannot notify them of important events
secondary
the market in which previously issued securities are traded AMONG investors
state
treasury issues are exempt from ______ income taxes
debenture
unsecured debt with original maturity of over 10 years
notes
unsecured debt with original maturity under 10 years
before a recession
when do we see an inverted yield curve?
treasury
which has a greater interest rate risk: a 30 year treasury bond or a 30 year corporate bond?