Final Ch16

Question 1

corporate bond

Answer 1

debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations

Question 2

par value

Answer 2

initial, principal or face value of the bond

Question 3

coupon rate

Answer 3

actual interest rate on the bond

Question 4

bond indenture

Answer 4

a supplement to the bond agreement covering every detail about the bond issue

  * specifies all the important features of a bond, such as its maturity date, timing of interest payments, etc.

Question 5

secured debts

Answer 5

debt backed or secured by collateral to reduce risk

1. mortgage agreement (real estate pledged)
2. after-acquired property clause: requires that any new property by placed under the original mortgage

Question 6

debenture bond

Answer 6

unsecured, long-term corporate bond with a general claim against the corporation

Question 7

methods of repayment (5)

Answer 7

1. simplest method
2. serial payments
3. sinking-fund provision
4. conversion
5. call feature

Question 8

simplest method

Answer 8

single sum payment at maturity

Question 9

serial payments

Answer 9

paid off in instalments over the life of the issue

Question 10

sinking fund provision

Answer 10

The issuer makes periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market.

Question 11

conversion

Answer 11

converting debt to common stock

Question 12

call feature

Answer 12

retire or force in debt issue before maturity

Question 13

bond yields (3)

Answer 13

1. coupon rate
2. current yield
3. yield to maturity

Question 14

yield to maturity

Answer 14

The rate of return anticipated on a bond if held until the end of its lifetime.

Question 15

refunding operation

Answer 15

When a company conducts a refunding operation, it recalls its existing bonds from the market. In exchange, a new bond issue is sold.

Question 16

zero-coupon rate bond

Answer 16

• bond that does not pay interest

- return to the investor is the difference between the investors cost and the face value received at maturity

Question 17

floating rate bond

Answer 17

the interest rate paid on the bond changes with market conditions

Question 18

eurobond market

Answer 18

A bond issued in a currency other than the currency of the country or market in which it is issued.

Question 19

capital (financing) lease

Answer 19

rental; short term doesn’t usually lead to asset ownership