Chapter 3 Flashcards
Debt Securities (39 cards)
Term Bonds -when are they paid?
Bonds that mature all at once
Serial Bonds - When are they paid?
Potions of principal mature in intervals
Balloon Bonds - When are they paid?
Portion is before maturity but a majority is paid on maturity date
What is a coupon rate on a bond?
The interest rate agreed to pay to investor
Generally, how often is interest paid on a bond?
every 6 months
if par value of a bond is $1000, what would 1 point be in dollars?
$10
What is the Nominal Yield?
coupon or stated yield
What is Current yield equation?
Annual coupon/market price
what is Yield to maturity (YTM)
the estimated annual rate of return on a bond if you hold it until maturity.
what is Yield to call (YTC)
is the annualized rate of return for a bond if it’s called before its maturity date.
Put Feature on bond
forces issuer to pay off bond before it matures - lower rate, but hedges against rising rates.
top 4 graded categories Moodys and Standard and poors
Moody: aaa,aa,a,baa
SP: aaa,aa,a,bbb
what are investment grade bonds
bonds with a BBB or BBA grading or better
What dictates Bond volatility?
first duration, then coupon rate
When someone is seeking income, what is the best type of security for that?
Debt investments (Bonds with income)
Worst outcome when owning a bond. This is when payments are not made
Default
What is the safest type of bond? Who is the issuer?
treasury backed
Purchase power risk, which reduces the bang for your buck, is driven by what?
inflation
What is a debenture or Senior debt?
unsecured bond of the highest priority
What is a guaranteed bond?
backed by a 3rd part in case of default. Most common is a parent company
What is a subordinated bond or Junior debt?
debenture with lower priority than a standard debenture
What is an income bond or adjustment bond?
only pay interest when company has enough income and board approves
What is a collateral trust bond
other securities held in a trust.
How treasury receipts work
Brokerage firms create treasury receipts by purchasing Treasury Notes and Treasury Bonds, stripping them of their coupons, and reselling them as zero-coupon bonds.
