Chapter 15: Investing in Bonds

General Obligation Bond

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

Registered Coupon Bond

A bond registered for principal only and not for interest. Interest payments can be made to anyone.

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. Most corporate bonds are this.

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 generate bu the project it is designed to finance.

Mortgage Bond

A corporate bond secured by various assets of the issuing firm. Safer than a debenture. Interests rates are usually lower.

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. Tax exempt.

Call Feature

A feature that allows the corporation to call in or buy outstanding bonds from current bondholders before the maturity date.

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.

Government Bond

A written pledge of a government or a municipality to repay a specified sum of money, along with interest.

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 debenture or mortgage bondholders with respect to interest payments, repayment, and assets. Higher interest rates due to increased risk.

Serial Bonds

Bonds of a single issue that mature on different dates.

High-Yield Bonds

Corporate bonds that pay higher interest, but also have a higher risk of default.

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 borrowed money.

Convertible Corporate Note

Legal debt that is convertible to shares of common stock at the investor's option.

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 - usually a 12-month period.