Chapter 4: Markets and Instruments (The Bonds Market)

Question 1

It is composed of longer-term borrowing instruments than those that trade in the money market.

Answer 1

Bond Market

Question 2

This market includes:

Answer 2

• Treasury Notes and Bonds
• Corporate Bonds
• Municipal Bonds
• Mortgage Securities
• Federal Agency Debt

Question 3

T-note maturities range up to _________, while T-bonds range from _____________.

Answer 3

10 years; 10 to 30 years.

Question 4

Both T-note and T-bonds are issued in _________ denominations and up

Answer 4

$1,000

Question 5

Both make semiannual interest payments called _____________.

Answer 5

coupon payments.

Question 6

are quoted as a percentage of par value,

Answer 6

Bond Prices

Question 7

the yield to maturity reported in the financial pages is calculated by determining the semiannual yield and then doubling it, rather than compounding it for two-half year periods.

Answer 7

Simple Interest technique

Question 8

to annualize means that the yield is quoted on an annual percentage rate (APR) basis rather than as an effective annual yield.

Answer 8

Simple interest technique

Question 9

Bonds that investors buy from foreign issuers.

Answer 9

International Bonds

Question 10

These are the years during which the bond is callable.

Answer 10

Callable bonds

Question 11

Also called as bond equivalent yield

Answer 11

APR method

Question 12

Bonds selling above par value; are calculated as the yield to the first call date.

Answer 12

Premium bonds

Question 13

is a foreign currency denominated bond issued locally

Answer 13

Eurobond

Question 14

are calculated as the yield to the maturity date

Answer 14

Discount bonds

Question 15

dollar- denominated bond sold in Britain

Answer 15

eurodollar bond

Question 16

yen-denominated bond sold outside Japan

Answer 16

Euroyen bonds

Question 17

is a dollar-denominated bond sold in the U.S. by a foreign firm.

Answer 17

Yankee bond

Question 18

is a yen-denominated bond issued in Tokyo by a non-Japanese company subject to Japanese regulations.

Answer 18

Samurai bond

Question 19

The means private firms borrow money directly from the public.

Answer 19

Corporate bonds

Question 20

they typically pay semiannual coupons over their lives and return the face value to the bondholder at maturity.

Answer 20

Treasury issues

Question 21

The two bond types

Answer 21

1. Secured bonds
2. Unsecured Bonds

Question 22

called Debentures, which have no collateral

Answer 22

Unsecured Bonds

Question 23

which have specific collateral backing them in the event of firm bankruptcy

Answer 23

Secured Bonds

Question 24

which have a lower priority claim to the firm’s assets in the event of bankruptcy.

Answer 24

Subordinate debentures

Question 25

give the firm the option to repurchase the bond from the holder at a stipulated call price.

Answer 25

Callable Bonds

Question 26

give the bondholder the option to convert each bond into a stipulated number of shares of stock.

Answer 26

Convertible Bonds

Question 27

are bonds that are tied to mortgage loans.

Answer 27

Mortgage-backed securities (MBS)

Question 28

refers to a type of financial contract whose value is dependent on an underlying asset, group of assets, or benchmark.

Answer 28

Derivatives

Question 29

These contracts can be used to trade any number of assets and carry their own risks.

Answer 29

Derivatives

Question 30

A _________ is set between two or more parties that can trade on an exchange or over-the-counter (OTC).

Answer 30

derivative

Question 31

are investment vehicles for individuals, and they can be profitable for lenders.

Answer 31

Mortgaged back-securities

Question 32

are usually leveraged instruments, which increases their potential risks and rewards.

Answer 32

Derivatives