Bonds Flashcards
(21 cards)
What is a bond?
Is an official promissory document issued by a debtor stating the acknowledgement of the amount of debt and the pledge to pay back the loaned amount.
What is a bondholder entitled to?
A bondholder is only entitled to the principal with interest.
In case of bankruptcy, who gets paid first? A bondholder or a stockholder?
A bondholder
Why are bonds described as fixed-income securities?
It is because the exact amount is known if the bond is held until maturity.
What is the borrower called?
Issuer of the bonds
What is face value?
It is not the price of the bond, rather the amount stated in the bond to be used by the bond issuer in calculating the interest to be paid to the bondholder.
Also referred to as par value
What is a premium bond?
It means the bond price is higher than the face value of the bond.
What is a discound bond?
It means the bond price is less than the face value.
What is a dividend?
It is the amount of interest.
What is dividend rate?
It is the interest rate the bond issuer will use in computing the interest payment.
What are coupon dates?
They are interval dates on which the bond issuer will make interest payments.
What is maturity date?
It is the date the bond will mature.
What is the maturity value?
It is the amount which will be paid to the bondholder on the coupon date.
What is the market index?
- It is the tool used by market investors and commercial managers in describing the stock market.
- It is the weighted average value of a group of a specific investment tool.
What is the Bond Market Index (BMI) for?
- It is used to measure the value of a section of the bond market.
- It is affected by interest rates and maturity dates.
What is the theory of efficient markets?
In an ideal efficient market, stocks trade at their fair value all the time and would be impossible to predict.
As public view is unpredictable, it is a risk
What are the different kinds of risks an investor may encounter?
- Price risk
- Credit risk
- Liquidity risk
- Country risk
What is price risk?
It is the risk caused by changes in market prices of equities/bonds.
What is credit risk?
It is the risk due to a borrower’s failure to pay the principal and/or interest on due date.
What is liquidity risk?
It is the risk due to inability to sell or convert assets into cash on time, or in an event where it is possible but at a losing end.
What is country risk?
It is the risk due to political, economic, or social events or structures in the country.
ex. A scandal happens in the Philippines, foreign investors withdraw
