Chapter 13

Question 1

A long-term liability with a specified amount of interest and specified maturity date

Answer 1

Bond

Question 2

The amount owed;the face value of a debt

Answer 2

Principal

Question 3

The time at which a debt issue becomes due and the principal must be repaid

Answer 3

Maturity date

Question 4

Payment for the use of money

Answer 4

Interest

Question 5

The specified interest rate or amount of interest paid by a bond

Answer 5

Coupon rate

Question 6

Annual income divided by the current price of the security

Answer 6

Current yield

Question 7

The yield earned on a bond from the time it is acquired until the maturity date

Answer 7

Yield to maturity

Question 8

The relationship between time to maturity and yields for debt in a given risk class

Answer 8

Yield curve

Question 9

The document that specifies the terms of a bond issue

Answer 9

Indenture

Question 10

The failure of a debtor to meet any term of a debts indenture

Answer 10

Default

Question 11

An appointee, usually a commercial bank, responsible for upholding the terms of a bonds indenture

Answer 11

Trustee

Question 12

A bond whose ownership is registered with the commercial bank that distributes interest payments and principal repayments

Answer 12

Registered bonds

Question 13

A bond with coupons attached or a bond whose possession denotes ownership

Answer 13

Bearer bond

Question 14

A bond with coupons attached that are removed and presented for payment of interest when due

Answer 14

Coupon bond

Question 15

Classification schemes designed to indicate the risk associated with a particular security

Answer 15

Credit rating systems

Question 16

Interest that has been earned but not received

Answer 16

Accrued interest

Question 17

A description of a bond that trades without accrued interest

Answer 17

Flat

Question 18

A bond that is secured by property, especially real estate

Answer 18

Mortgage bond

Question 19

A serial bond secured by specific equipment

Answer 19

Equipment trust certificate

Question 20

The process of converting an illiquid asset into a marketable security

Answer 20

Securitization

Question 21

An unsecured bond

Answer 21

Debenture

Question 22

A bond whose interest is paid only if it is earned by the firm

Answer 22

Income bond

Question 23

A bond that may be exchanged or converted into common stock

Answer 23

Convertible bond

Question 24

A long-term bond with a coupon rate that varies with changes in short-term exchange rates

Answer 24

Variable interest rate bond

Question 25

A bond on which interest accrues and is paid at maturity, and is initially sold at discount

Answer 25

Zero coupon bond

Question 26

A bond denominated in U.S. dollars but issued abroad

Answer 26

Eurobond

Question 27

Non-investment-grade securities offering a high return

Answer 27

High-yield securities

Question 28

Investment-grade security whose quality has deteriorated

Answer 28

Fallen angel

Question 29

Bond with a zero or low initial coupon followed by a period with a high coupon

Answer 29

Split coupon bond

Question 30

Bond whose coupon is periodically reset

Answer 30

Rest bond

Question 31

Bond whose coupon rises over time

Answer 31

Increasing rate bond

Question 32

Bond whose maturity date may be extended into the future

Answer 32

Extendible security

Question 33

0.01 percent

Answer 33

Basis point

Question 34

A bond issue in which specified bonds mature each year

Answer 34

Serial bond

Question 35

A series of periodic payments to retire a bond issue

Answer 35

Sinking fund

Question 36

The large final payment necessary to retire a debt issue

Answer 36

Balloon payment

Question 37

The right of an issuer to retire a debt issue prior to maturity

Answer 37

Call feature

Question 38

The act of issuing new debt and using the proceeds to retire existing debt

Answer 38

Refunding

Question 39

A premium paid for exercising a call feature

Answer 39

Call penalty