QBank Unit 2
A bond with a 3% stated yield and a $1,000 par value would pay how much in annual interest?
$30 The amount of interest payable annually as the stated, nominal, or coupon yield is calculated as follows: rate 3% × par value ($1,000) = $30
6% XYZ debentures are trading for $1,200 while similarly rated bonds are being offered at 4.5%. What is the current yield on the 6% XYZ debentures?
5% Current yield is defined as the annual income (or coupon rate) from a bond divided by the bond's current market price ($60 ÷ $1,200 = 0.05 or 5%). Accordingly, the current yield (5%) is lower than the coupon rate (6%) because the bond is trading at a premium
A bond has a 7% coupon and is currently offered at a price of 102. Which of the following yields could be the yield to maturity (YTM) for this bond?
6.55% For a bond trading at a premium (102), the ranking of yields from lowest to highest is yield to call (YTC), YTM, current yield, and nominal yield. Therefore, the YTM for this bond must be less than the nominal yield of 7%.
Regarding different types of debt security maturities available to issuers, which of the following is accurate?
A balloon maturity uses elements of both serial and term maturities. B) An issuer can schedule its bond's maturity using elements of both serial and term maturities. This is known as a balloon maturity. The issuer repays part of the bond's principal before the final maturity date, as with a serial maturity, but pays off the major portion of the bond at maturity
Your client is about to retire and wants to rearrange his portfolio in order to have predictable income. Which of the following would not be a good investment vehicle?
Adjustment bonds Income bonds, also known as adjustment bonds, are issued when a company is reorganizing and coming out of bankruptcy. Income bonds pay interest only if the company has enough income to meet the interest payment. Therefore, the interest payments are not predictable, and they are not suitable for customers seeking income
Which one of the following best describes a debenture?
An unsecured corporate debt obligation A debenture is unsecured corporate debt, not backed by any physical assets but only the issuer's good faith and credit
The repayment or maturity date of a banker's acceptance is normally which of the following?
As short as 1 day or as long as 270 days Banker's acceptances are short-term time drafts, making them money market instruments. Maturity (payback) dates are normally between 1 day and 270 days (9 months)
Which of the following securities is most often used to fund international trade?
Banker's acceptance (BAs) BAs are widely used in international trade for payments that are due for a future shipment and delivery of goods. For example, a Brazilian shoe manufacturer would receive a BA from a U.S. retailer for a guaranteed future payment when the shoes arrive in the United States. The manufacturer may ship its product knowing that the BA is guaranteed by a commercial bank. BAs are negotiable and freely traded in the money markets at a discount
Which of the following shows Treasury bills, Treasury bonds, and Treasury notes listed in ascending order of maturity?
Bills, notes, bonds Treasury bills have a maturity of less than one year, Treasury notes mature in 2 to 10 years, and Treasury bonds mature in 10 years or more. Therefore, in ascending order, short-term to long-term, they are T-bills, T-notes, T-bonds
Which of the following statements regarding bond interest is true?
Bond prices have an inverse relationship to interest rates. Bond prices have an inverse relationship to interest rates. If interest rates go up, bond prices for those bonds trading in the secondary markets will go down. Conversely, if interest rates decline, bond prices rise. Par value is a fixed number for the life of the bond
Which of the following regarding capital and money markets is true?
Capital markets provide intermediate to long-term financing The capital market serves as a source of intermediate to long-term financing. The money market, on the other hand, provides short-term financing
Which of the following terms best describes a corporate debt instrument secured by a pledge by the issuer of property that consists of stocks or bonds of other corporations?
Collateral trust certificate Collateral trust bonds or certificates are issued by corporations that own securities of other companies as investments. The certificates are secured by a pledge of those securities as collateral
The risk of being the last to get paid in a corporate liquidation is characteristic of which of the following?
Common stock Common stock is always last to get paid
Rank the following investors from lowest to highest priority in liquidation
Common stock, preferred stock, subordinate debentures, debentures, secured debt The normal priority from first to last is secured debt, debentures, subordinate debentures, preferred stock, common stock
If a bond is trading at a premium, which of the following rates is correctly ranked from high to low?
Coupon rate, current yield, yield to maturity, yield to call The order from high to low is coupon rate, current yield, yield to maturity, yield to call
If a bond is trading at a discount, which of the following rates is correctly ranked from low to high?
Coupon rate, current yield, yield to maturity, yield to call The order from low to high is coupon rate, current yield, yield to maturity, yield to call
Which of the following is an example of an unsecured debt security? - Debenture - Preferred stock - Mortgage bond - Income bond
Debenture, income bond A debenture and income bonds are examples of unsecured debt instruments. Preferred stock is an equity security and a mortgage bond is secured (collateralized) by real estate
Of the following government-sponsored entities, which is backed by the full faith and credit of the U.S. government?
GNMA FNMA and FHLMC are backed by the implied backing but not full faith and credit
Of the debt and equity holders listed here, in what order would claimants receive payment in the event that a corporate bankruptcy liquidation needed to occur? - Holders of secured debt - Holders of subordinated debentures - General creditors - Preferred stockholders
Holders of secured debt, general creditors, holders of subordinated debentures, preferred stockholders In the event of a corporate bankruptcy liquidation, the order of payment is as follows: secured debtholders, unsecured debtholders (including general creditors), holders of subordinated bonds, preferred stockholders, and common stockholders.
In what order would claimants receive payment in the event of a corporate bankruptcy? - Holders of secured debt - Holders of subordinated debt instruments - General creditors - Preferred stockholders
Holders of secured debt, general creditors, holders of subordinated debt instruments, preferred stockholders For corporate bankruptcies, the liquidation priority is as follows: secured debtholders, unsecured debtholders (including general creditors), holders of subordinated debt instruments, preferred stockholders, and common stockholders
Regarding filing for corporate bankruptcy, which of the following is true?
Liquidation means that property will be taken and sold to repay all debts The primary difference between a reorganization and a liquidation is that in a reorganization, the corporation can keep property and continue doing business. Liquidation means that all property will be taken and sold to repay all debts
Water and sewer facilities are most likely to use what kind of debt financing to fund expansion plans?
Municipal revenue bonds Municipal revenue bonds are issued to finance any municipal facility that charges user fees. These municipal bonds are self-supporting because principal and interest payments are made exclusively from revenues generated by the project for which the debt was issued, such as a water and sewer facility billing the municipalities' customers for usage each month
When interest rates in the marketplace move up, what happens to the coupon rate on existing bond?
Nothing; it does not change The coupon rate (the fixed rate, the nominal rate, the stated rate) is fixed when the bond is issued and does not change
Which of the following would be least likely to directly impact a bonds yield?
Number of bonds in the issue A bond's yield expresses the cash interest payments in relation to the bond's value. Yield is determined by the issuer's credit quality, prevailing interest rates, time to maturity, and any features the bond may have. The number of bonds in a single issue is generally determined by how much capital the issuer needs to borrow at the time of issue, while its yield is something that will fluctuate as the bond trades in the secondary market and gets closer to maturity
Subordinate debentures are senior to which of the following fixed income securities?
Preferred stock All debt securities are senior to equity securities
Which of the following is the most junior security?
Preferred stock All of these are debt securities except preferred stock. All debt securities are senior to equity securities
Which of the following projects would be funded by general obligation (GO) bonds?
Public schools Schools are funded by state and local taxes which is what backs GO bonds
When an issuer schedules portions of a bond issue's principal to mature at predetermined intervals over a period of years until the entire balance has been repaid, the issuer has issued what type of bond?
Serial A serial bond issue schedules portions of the principal to mature at intervals over a period of years until the entire principal balance has been repaid
A corporation has issued a single bond having successive maturity dates set from 2020 through 2030. This is known as what type of bond?
Serial Serial maturity bonds are all issued at one time and mature in successive years. Note that there is no series maturity type
Which of the following projects would most likely be funded with a revenue bond?
Sports stadium Revenue bonds are issued to finance self-supporting projects that generate enough revenue to pay the bond holders and run the facility. A stadium should be able to collect enough revenue to do that. The other three are not revenue-producing facilities
Regular way settlement for Treasury bills is
T+1. All U.S. government issues settle next business day (T+1)
Regular way settlement for Treasury notes is
T+1. All U.S. government issues settle next business day (T+1)
Which of the following are considered money market securities at the time of issue?
T-bills Money market securities are short-term (one year or less) securities at the time of issue. Of the choices listed, only Treasury bills meet the short-term criteria at the time of issue
Which of the following earn interest but don't pay interest?
T-bills T-bills are sold at a discount and pay par at maturity. The difference between the discounted price and par is considered interest, but T-bills don't make interest payments
A new customer tells you that her objective is to incur little risk because she is anticipating a new home within the next 12 months. Which of the following would be a suitable recommendation?
T-bonds The investor's time frame for needing the funds (within 12 months) and low-risk objective are the key factors to consider. With such a short time horizon, any equity investment involves too much risk, as does an investment in a high-yield bond fund (higher the yield, greater the risk to attain it). Of the choices, T-bills are the shortest fixed term and are issued by the U.S. government, entailing little to no risk
Which of the following is true regarding money market securities?
T-notes and T-bonds can be considered money market instruments when they have only a year left to maturity. Only T-bills, because they have maturities of one year or less, are considered money market securities at the time of issue. However, though issued with longer maturities, both T-notes and bonds are considered money market instruments once they have only a year left to maturity
A bond certificate represents
The borrower's obligation to repay the amount it borrowed plus interest When an investor lends money to an entity, the certificate evidencing the loan is known as a bond. This certificate represents the borrower's obligation to pay the investor back the amount it borrowed plus interest
Regarding municipal general obligation (GO) bonds, which of the following is true?
The lower the statutory debt limit, the safer for bondholders Municipal debt limits, known as statutory debt limits, can make a bond safer for investors. These limit the amounts of debt that the municipality can incur. The lower the debt limit, the less risk of excessive borrowing and default by the municipality, and thus the issuer's securities are safer for investors
Given bonds are interest-rate sensitive, which of the following statements regarding put and call features for bonds are true? - The put feature would likely be exercised if interest rates fall - The put feature would likely be exercised if interest rates rise - The issuer will likely call bonds if interest rates fall - The issuer will likely call bonds if interest rates rise
The put feature would likely be exercised if interest rates rise The issuer will likely call bonds if interest rates fall A put feature on a bond benefits the bondholder. Once the bond becomes puttable, its holder has the right to put it back to the issuer at par. At this point, the bondholder is insulated from rate risk (the risk that rates will rise, putting downward pressure on bond prices). Once puttable, the bond will not trade below par. Issuers will likely call bonds if rates fall. The issuer can issue new bonds at a lower rate and use the proceeds to call in the original bond
Which of the following regarding federal funds is true?
These funds may be loaned from one Federal Reserve Board (FRB) member bank to another. Federal funds are the excess amounts above the amount of a bank's deposits required to be held on reserve at the Federal Reserve member banks can lend these funds to one another to meet the FRB reserve requirements. These loans are very short term and, in most cases, are utilized overnight
Which of the following are true of municipal revenue bonds? - They are secured by a specific pledge of property - They are a type of general obligation bond - They are not subject to statutory debt limits - They are backed by a facilities ability to generate revenue
They are not subject to statutory debt limits They are backed by a facilities ability to generate revenue The two types of municipal bonds are general obligation (GO) and revenue bonds. Revenue bonds are not secured by a specific pledge of property; instead they are backed by project revenue. Unlike GO bonds, they are not subject to any statutory debt limits
A municipality wants to issue general obligation (GO) bonds that will put it over its statutory debt limit. Which of the following is true?
They may do so with voter approval The amount of GO debt that a municipal government may incur can be limited by state or local statutes to protect taxpayers from excessive taxes. In order to issue bonds that would exceed this borrowing limit voter approval would be needed—that is, the approval of those who would be paying the taxes
U.S. government deposits securities with a trustee against which certificates are sold representing principal only with no regular interest payments. These are known as
Treasury STRIPS When the U.S. government deposits securities with a trustee, against which it issues certificates representing principal payments only, and no regular interest payments, these are known as Treasury STRIPS
Debt instruments put up for auction by the U.S. Treasury Department that offer intermediate maturities best describes
Treasury notes. Treasury notes (T-notes) are the intermediate maturity (2-10 years) government-issued debt instruments. T-bills are short term (less than one year), and T-bonds are long term (10 years or more). Anticipation notes are short-term municipal-issued revenue notes
All of the following securities are backed by the full faith and credit of the U.S. government except
Treasury receipts Treasury receipts are issued by broker-dealers, and they are backed by the good faith and credit of those that issue them. Treasury STRIPS are the U.S. Treasury Department's version of these, and therefore they are backed in full by the U.S. government. Treasury bills, notes, and bonds are backed in full by the U.S
In safety of principal, municipal bonds are considered second only to
U.S. government and agency bonds Municipal securities are considered second in safety of principal only to U.S. government and agency issues
A certificate stating a borrower's obligation to pay back a specific amount of money on a specific date to an investor is
a bond A bond is best described as a certificate stating a borrower's obligation to pay back a specific amount of money on a specific date to an investor. A bond certificate also states the borrower's obligation to pay the investor a specific rate of interest for the use of the funds.
A convertible feature for a corporate bond allows
a bondholder to convert a debt instrument into securities that give the investor ownership rights. Corporate bonds with convertible features allow the bondholders to convert the debt obligation they hold into shares of stock. Stock gives the holders an equity position in the company with ownership rights
When purchasing a bond, the investor is taking on
a creditor position When an investor is purchasing a bond, he is lending money to the issuer and becomes a creditor of the issuer
With money market securities held in one's portfolio, relative to other, longer-term debt securities, an investor should expect
a higher degree of safety with lower returns Because of their short-term maturities, money market securities are considered highly liquid and provide a relatively high degree of safety. In return for the safety, investors forgo a higher return for the lower returns generally associated with money market securities
A balloon maturity for an issuer's debt securities is most accurately described as
a later final maturity within a serial issue of bonds that contains a disproportionately large percentage of the principal amount of the original issue A balloon maturity is generally distinguished from term bonds by the presence of serial maturities in the years immediately preceding the final maturity date. While some of the principal is paid back on the serial dates, the major portion of the principal is paid back on the final maturity date
A company has issued bonds (debt securities) to investors. For these investors, these securities represent
a loan to the issuing company Purchasers of bonds have essentially given the issuer a loan for which they will receive repayment plus interest
An investor has purchased bonds having a put feature attached. With this put feature, it is likely that these bonds were issued with
a lower coupon than similar bonds without the feature When bonds are issued with features that benefit the bondholder, such as a put feature, the issuer can generally pay a slightly lower coupon rate of interest. This is because the put feature compensates the holder in another way, aside from the coupon rate
An unsecured promissory note issued by a bank that can be traded in the secondary market is known as
a negotiable CD. Corporations issue unsecured promissory notes known as commercial or prime paper. When a bank issues an unsecured promissory note, it is known as a negotiable
Treasury bond (T-bond) interest is stated as
a percentage of par value Like Treasury notes (T-notes), Treasury bonds (T-bonds) have interest stated as a percentage of par value. Example: Par value $1,000, with 4% interest equals $40 interest per year (0.04 × $1,000 = $40)
Assuming $1,000 par value, a bond priced at $1,200 is trading at
a premium When a bond is priced above par value, it is trading at a premium (premium to par)
A bond that is structured so that the principal of the whole issue matures at once is
a term bond With a term bond, the entire offer matures at the same time. A serial bond has portions maturing over a period of years. A balloon is a hybrid of a term and a serial maturity. Series is not a type of bond maturity
Municipal bonds are issued by all of the following government entities except
agencies. Municipal bonds can be issued by any government entity except the federal government
In the event that a liquidation needs to occur, subordinated debtholders
agree to be paid back last of all debtholders In the event that a liquidation needs to occur, though they are still senior to all equity holders, subordinated debtholders agree to be paid back last of (subordinate or junior to) all debtholders
A bond with a 4.5% stated yield might make - annual interest payments of $45 - annual interest payments of $450 - semiannual interest payments of $2.50 - semiannual interest payments of $22.50
annual interest payments of $45 semiannual interest payments of $22.50 A bond with a 4.5% stated, nominal, or coupon yield pays $45 annual interest (4.5% × $1,000 par value). If the $45 annual interest is paid in semiannual payments, each would be $22.50
T-bonds and T-notes
are both priced as a percentage of par. Both Treasury notes and bonds are priced as a percentage of par. Interest on these is paid semiannually. Comparatively, T-bills are priced at a discount to par with the interest not paid until maturity (the difference between the discount paid and par value received)
Treasury bills
are issued at a discount without a stated interest rate. Treasury bills are always issued at a discount, without a stated interest rate. Because of their short-term maturities, they have the lowest interest-rate risk for Treasury securities, not the highest. They are issued with maturities of 4, 13, 26, and 52 weeks
A corporation wanting to raise cash to finance accounts receivable and seasonal inventory needs is likely to issue any of the following except
bonds. To raise cash for short-term needs, such as accommodating accounts receivable or inventory needs, corporations would issue commercial paper (also known as prime paper or promissory notes). Bonds should always be associated with long-term debt financing
STRIPS are delivered in
book entry All U.S. government issues are delivered in book entry
T-notes are delivered in
book entry All U.S. government issues are delivered in book entry
A bond having a call feature
can be redeemed before maturity at the issuer's option A bond with a call feature may be redeemed before maturity at the issuer's option. There is no guarantee that it will or will not be called, nor is there a requirement that it must be called
A corporation has issued debt securities backed by the shares of another corporation that it owns. These debt securities are known as
collateral trust bonds A corporation can deposit securities it owns into a trust to be used as collateral to back its debt issues. When this is done, the securities issued are known as collateral trust bonds
Promissory notes are a form of
commercial paper issued by corporations. Corporations issue short-term, unsecured commercial paper, known as promissory notes. The proceeds from these notes are generally used to fund such items as pending accounts receivable and seasonal inventory gluts
All of the following are names for the rate stated on the face of the bond except
current yield The current yield is calculated by dividing the annual interest payment amount by the current price of the bond. The others are all the same as the stated rate and are calculated by dividing the annual interest payment amount by $1,000
All of the following are corporate secured bonds except
debentures. Debentures are unsecured. Mortgage bonds are backed by property. Equipment trust certificates are backed by equipment. Collateral trust certificates are backed by securities
An investor purchases a bond offered at par. The bond has a coupon rate
equal to its current yield. When a bond is selling at par, its coupon or nominal rate, current yield, and yield to maturity are all the same
To the benefit of the issuer, a callable bond is likely to be called when interest rates
fall Bonds with call features are most likely to be called by an issuer when interest rates fall. For example, if an issuer has an outstanding bond paying 6% and interest rates have fallen to 4%, why pay out 6% when prevailing market rates are only 4%? Better to call in the 6% bond and reissue a new bond at the current rate of 4%. In this way, call features benefit the issuer
A Federal Reserve member bank's deposits in excess of the amount required to be on reserve are known as
federal funds. The Federal Reserve Bank (FRB) mandates how much money its member banks must keep on reserve at the Federal Reserve. Any deposits in excess of the required amount are known as federal funds
Bondholders should expect that interest payments would always be forthcoming for all of the following except
income bonds Income bonds pay interest only if earnings are sufficient and the payments to be made are declared by the board of directors (BOD). This is not true of any of the other fixed-income securities listed (debentures, subordinated debentures, or convertible bonds)
Income from an investment in debt securities is known as
interest Income from debt securities is known as interest. Income from common stock is known as dividends. Sale of a security for a price different from that originally paid is known as a capital gain or loss. The total return on an investment is the sum of income received and capital gain or loss upon sale
The relationship between fixed-income prices and prevailing interest rates is
inverse As interest rates (yields) increase, the price of outstanding debt decreases and vice versa. The resulting relationship is called an inverse relationship
A statutory debt limitation imposed on a municipality restricts its authority regarding
issuing general obligation (GO) bonds. A municipality may be limited by statute regarding the amount of GO debt it may incur, thus limiting the GO bonds it can issue
An investor holds a 5% bond callable in six years and maturing in eight years. The bond's current yield (CY) measures its annual coupon payment relative to
its market price The CY measures a bond's annual coupon payment (interest) relative to its market price, as shown in the following equation: annual coupon payment ÷ market price = current yield
The two classifications of chapters for corporate bankruptcies are - liquidations - reorganizations - bankruptcy - failures
liquidations reorganizations Corporate bankruptcies can be either liquidations, where assets are sold off and proceeds are distributed based on the priority of the claim, or reorganizations, where the company continues to operate under a plan to repay creditors
Bonds can be issued with additional features attached, making them more attractive to investors. All of the following can be considered such features except
maturity. The features most commonly attached to a bond issue would be having the bond be callable, puttable ( a bond with a put feature), or convertible. Each of these features in its own way might make the issue more attractive to an investor. All bonds have a stated maturity, and as such, this would not be considered an additional feature
When interest rates in the open market move up or down, a bond's coupon rate will
move inversely to the open-market interest rates. Though the price of a bond will react to market forces, such as supply and demand, and be interest-rate sensitive (inverse), the coupon is always the same: A fixed percentage of par value established by the issuer when the bond was first issued
A state government has outstanding debt that it issued to finance toll roads, sports facilities, and public housing projects. All of these issues are examples of
municipal revenue bonds. These are all examples of municipal revenue bonds, which are bonds issued to finance a project or facility with the bonds' debt service backed by the facility's revenue stream. The revenue might come from rents, tolls, or admission fees, among other sources
A serial bond is best described as
portions of bond principal scheduled to mature at intervals over a period of years until the entire balance has been repaid A serial bond issue schedules portions of the principal to mature at intervals over a period of years until the entire balance has been repaid
Two benefits of owning preferred stock over common stock are
priority at liquidation and payment of dividends. Liquidation and payment of dividends are two areas in which preferred stock has a benefit over common stock. Dividends are not guaranteed and rising interest rates are a negative. Preferred gets paid after debt, wages, and taxes
Short-term securities that generate funds for a municipality that expects alternate longer-term financing include all of the following except
real estate investment trusts (REITs). TANs, for example, are used to finance current operations in anticipation of future tax receipts. This helps municipalities to even out cash flow between tax collection periods. Similarly, BANs will be converted to long-term financing through the sale of bonds, and so on. REITs are not a municipal security. They issue shares of beneficial interest in a trust set up for real estate investment
A bond is trading at a price of $1,150 in the secondary market. If purchased at this price and held to maturity, this will
reduce the investor's return. At a price of $1,150, this bond is trading at a premium—in this case, a $150 premium. Because the bond will mature at par value ($1,000), any premium paid at the time of purchase will reduce the overall return. Conversely, if purchased at a discount and held to maturity, the amount representing the discount increases the investor's return.
The first investors to get paid in corporate liquidations are holders of
secured debt Secured investors are the first to get paid in corporate liquidations
Treasury bonds pay interest
semiannually and mature at par value. Treasury bonds (T-bonds) and notes (T-notes) both pay interest semiannually and mature at par value
T-bills are the U.S. government's
short-term debt of 1 year or less. T-bills have a maximum maturity of 52 weeks (one year) by law
When a corporation issues a mortgage bond, the issue's total value
should be less than that of the real estate it is backed by Mortgage bond issues represent the amount the issuer is borrowing that is backed by its real estate assets. Just as with a home mortgage, the amount borrowed shouldn't exceed the value of the property. Hence, the issue's total value should be less than that of the real estate by which it is backed. Backed by real property, these are secured debt instruments
Bonds can typically be issued with
term, serial, or balloon maturities The three types of maturities that bonds can typically be issued with are term, serial, or balloon maturities. Note that there is no series maturity type.
In order to meet federal budget needs, the types and quantity of government securities to be issued are determined by
the Federal Reserve Board (FRB) It is the U.S. Treasury Department that determines the types and quantities of government securities to be issued each week in order to accommodate budgetary needs. At the time of issue, the Federal Reserve Board acts as the Treasury Departments agent
Treasury receipts are backed by
the issuing broker-dealer. Treasury receipts are issued by broker-dealers. Although Treasury securities (T-notes and bonds) are held in trust at a bank and collateralize the Treasury receipts, unlike Treasury securities backed by the U.S. government, these Treasury receipts can only be backed by their issuer, the issuing broker-dealer
An investor owns a bond carrying a 4% coupon. Interest rates in the marketplace have been moving downward and are currently at 2.5%. Given the current interest rates in the marketplace, this investor should see
the price of the bond move higher. Prices of bonds trading in the secondary market have an inverse relationship to interest rates. As interest rates rise in the marketplace, the prices of bonds trading in the secondary market will fall, and as interest rates fall in the marketplace, the prices of bonds trading in the secondary market will rise. Once the coupon rate is established by the issuer, it remains unchanged throughout the life of the bond
The coupon payable on a bond may also be referred to
the stated or nominal yield The coupon rate is also called the stated or nominal yield. It is the rate of interest the issuer has agreed to pay the investor for use of the funds loaned to the issuer
When an issuer has equipment trust certificates outstanding - title to the assets backing the certificates are held in trust - the equipment is held in trust. - the assets can be repossessed and sold by the trustee. -the certificates are unsecured because they represent the debt owed on the assets.
title to the assets backing the certificates are held in trust. the certificates are unsecured because they represent the debt owed on the assets. When equipment trust certificates have been issued, the titles to the assets (not the actual equipment) backing the certificates are held in trust. If the issuer fails to make the payments on the equipment, it can be repossessed and sold to pay off the debt held by the certificate holders. In other words, it is the equipment acting as the collateral that secures these loans
Interest on a 7% corporate bond would be paid to the investor as
two semiannual checks for $35 each. Interest on corporate bonds is paid twice per year, or semiannually. The interest rate reported, however, is an annual rate. Thus a 7% bond would pay 7% of par ($1,000), or $70, per year as two semiannual checks for $35 each
A bond backed by a corporation's full faith and credit is - secured - unsecured - backed by a specific asset - not backed by any assets
unsecured backed by a specific asset When a bond is backed by a corporation's full faith and credit, it is backed only by the reputation, credit record, and financial stability of the corporation. Not being backed by any of the corporation's assets, this bond is unsecured
Commercial paper is
unsecured debt with a maximum maturity of nine months. Issued by corporations, commercial paper, also known as prime paper or promissory notes, are unsecured money market instruments with maximum maturities of 270 days (nine months)
For a callable bond priced at a discount,
yield to maturity (YTM) will be lower than the yield to call (YTC) For callable bonds trading at a discount, YTC will be the highest possible yield, higher than YTM, CY, and the coupon (stated or nominal) yield
