7: Bond Valuation Part II

bond ratings are an assessment of the _____ of __________

creditworthiness, corporate issues

the ______ refers to the interest only portion of a bond's total return

current yield

_______ are unsecured

debentures

municipal securities have varying degrees of ______, rated similar to _______

default risk, corporate debt

a _________ is when a bond is not callable for a period of time (it is ______)

deferred call provision, call protected

in terms of bond quotations: a _______ is the price of the bond with the accrued interest

dirty price (in between itnerest payments)

treasury securities are _______ debt

federal government

*collateral bonds* are secured by __________

financial securities

convertible bonds can be swapped for a ____ of shares of _____

fixed number, stock

there is less price risk with ______

floating rate bonds

a put bond allows the ______ to force the _____ to buy the bond back at a _______

holder, issuer, stated price

*income bonds* have coupon payments that are dependent on the company's _______

income

Sukuk are typically bought and held to __________ and are extremely _________

maturity, illiquid

________ are secured by real property, normally land or property

mortgage bonds

corporate rate equation

municipal bond coupon rate / [1 - marginal tax rate]

corporate rate*[1-marginal tax rate]

municipal bond coupon rate equation

characteristics of _______ - debt of state and local governments - varying degrees of default risk, rated similar to corporate debt - interest received is tax-exempt at the federal level

municipal securities

pure discount bonds with original maturity of one year or less

T-bills

coupon debt with original maturity greater than ten years

T-bonds

coupon debt with original maturity between one and ten years

T-notes

3 main rating agencies

Moody's, Standard and Poor's, Fitch

2 examples of zero coupon bonds

Treasury Bills, US Savings bonds

a *call premium* is when the call price is generally placed _____ the bond's ______

above, stated value

2 examples of coupon rates that float depending on some index value

adjustable rate mortgages, inflation-linked Treasuries

________ are an assessment of the creditworthiness of corporate issues

bond ratings

a ________ is when the call price is generally placed above the bond's stated value

call premium

a ________ allows the company to repurchase part or all of a bond issue at a stated price over a specific period of time

call provision

3 callable bonds

call provision, call premium, deferred call provision

rate of return

cash flow / price

Sharia does not permit the ____ or ____ of interest

charging, paying

in terms of bond quotations: a _____ is the price of the bond net of the accrued interest

clean price

coupons may have a _______ -- the rate cannot go above a specified _______ or below a specified ______

collar, ceiling, floor

_________ are secured by financial securities

collateral bonds

_______ can be swapped for a fixed number of shares of stock

convertible bonds

municipal bond coupon rate / [1 - marginal tax rate]

corporate rate equation

municipal bond coupon rate equation

corporate rate*[1-marginal tax rate]

T-notes are ______ with original maturity ________

coupon debt, between one and ten years

T-bonds are ____ with original maturity _____

coupon debt, greater than ten years

_________ have coupon payments that are dependent on the company's income

income bonds

coupon rate floats depending on some ________

index value

the *current yield* refers to the ______ portion of a bond's _____

interest only, total return

a *deferred call provision* is when a bond is _______ for a period of time (it is call protected)

not callable

________ are unsecured debt with original maturity less than 10 years

notes

Bond markets are typically ______________ transactions with _______ connected electronically

over-the-counter, dealers

zero coupon bonds cannot sell for more than ________

par value

there is less ____ with floating rate bonds

price risk

for zero coupon bonds, the entire yield-to-maturity comes from the difference between the _____ and the _______ (capital gains)

purchase price, par value

T-bills are ______ with original maturity of ______

pure discount bonds, one year or less

______ allows the holder to force the issuer to buy the bond back at a stated price (par value)

put bond

cash flow / price

rate of return

*mortgage bonds* are secured by _________, normally _____ or _______

real property, land, buildings

a *call provision* allows the company to ______ part or all of a bond issue at a _____ over a ________

repurchase, stated price, specific period of time

municipal securities are debt of _____ and _____ governments

state, local

______ are bonds that have been created to meet a demand for assets that comply with Sharia / Islamic law

sukuk

interested received on municipal securities is ____ at the _______

tax-exempt, federal level

__________________ is the relationship between time to maturity and yields all else equal (rates on default free, pure discount securities and time to maturity)

term structure of interest rates

*term structure of interest rates* is the relationship between _______ and _____ all else equal

time to maturity, yields

___________ are federal government debt

treasury securities

debentures are ________

unsecured

notes are ___________ with original maturity less than ______

unsecured debt, 10 years

term structure of interest rates is also known as ________

yield curves

there is less price risk with floating rate bonds because the coupon floats, so it is less likely to differ substantially from the ________

yield to maturity

_______ make no periodic interest payments

zero coupon bonds

for __________, the entire yield-to-maturity comes from the difference between the purchase price and the par value (______)

zero coupon bonds, capital gains

2 names for zero coupon bonds

zeroes, deep discount bonds