Personal Finance: Chapter 15 Investing in Bonds

The usual face value of a corporate bond is ______, but the face value of some corporate bonds may be as high as ______.

$1,000 , $50,000.

general obligation bond

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

registered coupon bond

A bond registered for principal only and not for interest.

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.

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 generated by the project it is designed to finance.

mortgage bond (secured bond)

A corporate bond secured by various assets of the issuing firm.

municipal bond

A debt security issued by a state or local government.

call feature

A feature that allows the corporation to call in or buy outstanding bonds from current bond- holders before the matu- rity date.

sinking fund

A fund to which annual or semi- annual deposits are made for the purpose of redeeming 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 munici- pality 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 matu- rity, the current price, and the dollar amount of interest.

subordinated debenture

An unsecured bond that gives bondholders a claim secondary to that of other designated bondholders with respect to interest payments, repayment, and assets.

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 invest- ment by the investment's current market value.

convertible corporate note

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

yield

The rate of return earned by an investor who holds a bond for a stated period of time—usually a 12-month period.

debenture

a bond that is backed only by the reputation of the issuing corporation.

corporate bond

a corporation's written pledge to repay a specified amount of money with interest

trustee

a financially independent firm that acts as the bondholders' representative.

bond indenture

a legal document that details all of the conditions relating to a bond issue.

maturity date

date on which the corporation is to repay the borrowed money.

face value (par value)

is the dollar amount the bondholder will receive at the bond's maturity.