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Series 7 > Chapter 2 : Debt Securities > Flashcards

Chapter 2 : Debt Securities Flashcards

Debt Securities

1
Q

Bonds

A

DO NOT REPRESENT OWNERSHIP
Represent debt obligation

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2
Q

Par Value Bond

A

1000

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3
Q

Interest Rate Bond

A

Same as Coupon Rate
Fixed rate percentage of par value

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4
Q

Bond Interest is Paid (how often)

A

Semi Annually

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5
Q

One Point of a bond is?

A

$10

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6
Q

Maturity Date =

A

Date a bond becomes due for repayment

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7
Q

Discount / Par / Premium

A

Less 1000
@1000
More 1000

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8
Q

Series Bonds

A

Different issue dates usually same maturity date

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9
Q

Term Bonds

A

Entire issue of bonds have the same maturity date

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10
Q

Serial Bonds

A

One issue date , Staggered maturity date(s)

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11
Q

Balloon Maturity

A

Large amount comes due near or on final maturity date

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12
Q

Bond Ratings

A

AAA Investment Grade
AA
A

BBB Speculative Grade
BB
B
CCC
CC
C
DDD
DD

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13
Q

AM Best

A

Rates insurance companies

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14
Q

Bond Taxation

A

Corporate Level
Fed State Local
Government
Fed
Municipal
Tax Free

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15
Q

Maturities Length

A

Short
1-3 Years
Medium
4-10 Years
Long
10+ Years

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16
Q

Discount Par Premium

A

Discount
Yield > Coupon
Par
Yield = Coupon
Premium
Yield < Coupon

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17
Q

Nominal Yield

A

= Coupon Rate

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18
Q

Current Yield

A

= Actual Income

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19
Q

Yield to maturity or basis

A

= Long Term Yield

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20
Q

Current Yield
Calculation

A

Annual Int / Market Price
Example
9% Bond @90
90/900 = 10%

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21
Q

Market Price Rises

A

Yield To Maturity goes
DOWN

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22
Q

Market Price Lowers

A

Yield to Maturity goes
UP

23
Q

Bonds are fixed income because of

A

Interest Rate

24
Q

Interest Rises

A

Outstanding bonds Lower
Inverse Reaction

25
Q

Interest Lowers

A

Outstanding bonds Rise
Inverse Reaction

26
Q

Bond Basis Point

A

1/100th of a point 0.01%
1% Change is 100 Basis Points

27
Q

Discount

A

Basis (YTM) Higher than coupon rate
Yield > CP

28
Q

Premium

A

Basis (YTM) Lower than coupon rte
Yield < CP

29
Q

Par

A

Basis (YTM) Same as coupon rate
Yield = CP

30
Q

Short Term

A

Quickest Reaction to Interest Rate
Safest

31
Q

Long Term

A

Greatest Reaction to Interest Rate
Riskier

32
Q

Bonds M Meaning

A

M = 1000
5M Bonds = 5000 worth of bonds

33
Q

Bond Quote

A

6s of 28 @ 109
6% Coupon Rate
Maturity Date 2028
Dollar Price = 109

34
Q

Accrued Interest

A

Amount of interest built up since last interest payment

35
Q

Claculating Bond Interest when buying a bond

A

Current MP + Accrued Interest
Calculated 30 Day Month / 360 Day Year
Paid up to but not including the settlement date
1st and 15th of the month
1st= 30 Days
15th = 16 Days

36
Q

Accrued Interest Appears for Both Buyer and Sellers

A

Added to the amount the buyer pays
Added to the amount the seller receives

37
Q

Fundemental Corporate Bonds

A

Paid Semi Annually
Fully Taxable = Fed State & Local
Dealer / Principle Transaction

38
Q

Leveraged Buyout

A

Takeover using borrowed funds

39
Q

Spin Off

A

Subsidiary of a company becomes its own company

40
Q

Holding Company

A

Owns enough voting shares to have an influence

41
Q

Secured Bond

A

Secured by collateral

42
Q

Mortgage Bonds

A

Secured by real property

43
Q

Closed End Mortgage Bonds

A

Property cannot be used as collateral for future loans unless subsequent loans lesser in claim

44
Q

Open End Mortgage Bonds

A

Property can be used as collateral.
All debt holds equal claim
More risk = higher reward

45
Q

General Mortgage Bond

A

Pledge all assets no specific lots named

46
Q

Equipment Trust Certificate

A

Not Callable
Serial form
Rarely default

47
Q

Guarenteed / Parity Bond

A

Guarenteed by company other than issuer
Parity = Equal Claim and Rights

48
Q

Debenture

A

Backed by good faith and credit
Unsecured with NO COLLATERAL

49
Q

Subordinated Debenture

A

Holds lesser claim

50
Q

Income / Junk / Fallen Angel Bonds

A

Risky Lack of Credit
Higher Coupon Rate

51
Q

Low Quality Bonds Offer?

A

Higher Yield
Lower Price

52
Q

Hight Quality Bonds Offer?

A

Lower Yield
Higher Price

53
Q

Income or Adjustment Bonds

A

Considered Risky Investment
Called adjustment when used in corporate reorganization

54
Q

Zero Coupon Bond

A

Sold at deep discount
Pays No interest while outstanding
One lump sum payout at maturity which includes initial investment and imputed interest
Phantom income = taxed annually based on value even though no income
Most Volatile Fixed Income Security

Series 7 (3 decks)

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