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