Chapter 14 Flashcards
(19 cards)
what is a bond?
a written promise to pay an amount identified as the par value along with interest at a stated annual rate
What is par value?
face amount or face value
bond certificate
a document that specifies the issuer’s name, the bond’s par value, the contract interest rate, and the maturity date
What are the 2 main options for raising money in a corporation?
Issuing shares or issuing bonds
What can be a cause of issuing more shares only?
It can dilute the ownership of existing shareholders
What do bondholders have the ability to do?
To force the company into bankruptcy if they’re unable to make bond interest or principal payments for issued bonds
What are secured bonds?
Assets that are pledged as a guarantee of payment by the issuing company
What are unsecured bonds?
Bonds not backed by specific assets but only by earning capacity and credit reputation of the issuer
What is a term bond?
Principal of all bonds due in a lump sum at a specific single date
What is a serial bond?
Principal due in installments at several different dates
What is a registered bond?
Bonds issued registered in the names of the buyers. Ownerships records are kept up to date.
What is a bearer bond?
Bonds payable to the person who possesses them. No records are kept for change of ownership.
What is a convertible bond?
Bonds that allow the buyer to exchange the bond for common shares at a fixed ratio
What is a callable bond?
Bonds that may be called for early retirement at the option of the issuing corporation
What is a redeemable bond?
Bonds that may be retired early at the option of the purchaser
What is a bond indenture?
The legal document or contract identifying the rights and obligations of both the bondholders and the issuer
What does a bond sell for when the coupon/contract rate is “above market rate” ?
At a premium or greater than 100% of face value
What does a bond sell for when the coupon/contract rate is “equal to market rate”?
At par value or equal to face value
What does a bond sell for when the coupon/contract rate is “below market rate”?
At a discount or less than 100% of face value
