From quiz- Unit 13

convertible bond Feature

Because THIS feature offers potential growth through the exercise of the conversion option, the interest rate on these securities is generally lower than other debt issues of the same corporation.

risks of money market securities

Because of their many advantages, the rate of return is quite low, so these are not suitable for long-term investors. Fluctuating income—due to short-term maturities, principal is potentially being reinvested at a different rate each time the instrument matures.

Higher yield

Because zero-coupon bonds pay nothing until maturity, that added risk requires a THIS to attract investors.

Corporations Only

Convertible bonds are issue by what ENTITY

Bond Duration

How long it takes the bond investor to make their money back.

interest rate risk

Insured bank CDs have none of this risk but they do have purchasing power (inflation) risk

Negotiable CDs - jumbo CDs - Brokered CDs

Issued by banks. Minimum face of $100,000. Mature in 1 yr or less. FDIC insurance applies up to $250,000. Interest bearing. do not have a prepayment penalty; pay interest semiannually.

short-term debt

Money market instruments are

zero coupon bond

THESE bonds pay nothing until maturity, that added risk requires a higher yield to attract investors.

interest rate

THIS feature is generally lower on Callable debt securities than other debt issues of the same corporation.

call - debt security

THIS feature permits the issuer to redeem its bonds, that is pay off the principal, before maturity

Reinvestment Risk

The Call feature of a debt security increases the THIS risk and that is compensated for with a higher coupon.

higher coupon rate

The Call feature of a debt security increases the reinvestment risk and that is compensated for with a THIS.

interest rates - borrowing costs

The call feature of a debt security is most often exercised when THESE have declined.

CD's - time deposits

These are interest-bearing debt instruments issued by banks at their face value. capital preservation with no risk. Even with the potential early withdrawal penalty, these are considered liquid assets

Yankee bonds

U.S. dollar-denominated bond issued by a non-U.S. entity INSIDE the United States; a foreign bond sold in the U.S. in U.S. Dollars. Because they are issued in the U.S., they come under the registration requirements of the Securities Act of 1933. example of this is the Maple bond, a Canadian dollar-denominated bond issued by a non-Canadian entity in the Canadian market.

Convertible - the ability to covert the bond

When it comes to issuing a debt security, THIS generally enable the issuing corporation to borrow at the lowest interest rate

par value

a bond's stated value, to be paid to the bondholder at maturity; $1000. bonds are quoted as a percentage THIS, so a price of 90 means $900, or 90% of $1000.

all issued at a discount

commercial paper Treasury bills zero coupon bonds

convertible bonds

corporate bonds that can be exchanged at the owner's discretion into common stock of the issuing company

LIBOR (London Interbank Offered Rate)

the world's most widely used benchmark for short-term interest rates.

commercial paper

unsecured promissory notes of $100,000 and up that mature (come due) in 270 days or less; exempt from registration on both the federal and state level

why would you place money market securities in a client's portfolio

„ Highly liquid „ Very safe „ !e best place to store money that will be needed soon