CH 10 INV
To earn a high rating from the bond agencies a company would want to have
-A low debt-to-equity ratio -A high quick ratio
TIPS
Commonly called inflation-indexed treasury securities
Bonds that would be called in an era of low interest rates
Coupon bonds selling at a premium
BBB rated bonds
considered investment grade by S&P
TIPS offer investors inflation protection by ____ by the inflation rate each year
increasing both the par value and the coupon payment
A debenture is ____
unsecured
Puttable bond
Gives the bondholder the right to cash in the bond before maturity at a specific price after a specific date
Callable bond
Gives the issuer an option to retire the bond before maturity at a specific price after a specific date
When will a bond sell at a premium to par?
When its coupon rate is greater than its yield to maturity
Liquidity preference theory requires
a higher yield on long-term bonds than on short-term bonds
If you are holding a discount bond, you must expect a ____ each year until maturity
capital gain
If you are holding a premium bond, you must expect a____ each year until maturity
capital loss
Current yield
computed as the ratio of the annual coupon payment to the market price
Floating rate bonds have a _____ that is adjusted with current market interest rates
coupon rate
The expectations theory says that if the yield curve is downward sloping, short-term interest rates should ____ in the future
decrease
Sinking funds are commonly viewed as protecting the ___ of the bond
holder
TIPS are an example of
indexed bonds
C rated bonds
junk bonds
The ___ the maturity of the bond and the ____ the coupon, the greater the sensitivity of the bond's price to interest rate changes
longer, lower
Difference between treasury notes and bonds
maturity at issue
Mortgage bond
secured by property owned by the firm
Invoice price of a bond
stated or flat price in a quote sheet plus accrued interest
Yields on municipal bonds are generally lower than yields on similar corporate bonds because of differences in ___
taxation
Indenture
the document that defines the contract between the bond issuer and the bondholder
Convexity relates to
the shape of the bond price curve with respect to interest rates