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Flashcards in Chapter 5 Fixed-Income Securities Deck (38)
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1

Bond Basics

Bands represent what of an issuer ?

Bonds represent a loan or debt obligation of an issuer (the borrower)
-issuer is responsible for interest payments and repayment of principle at maturity (debt service)
-Bond holder is a creditor, not an owner
-Default occurs if interest or principal payments are missed

2

Bond Basics - Form of Issuance
1 Bearer
2 Reg as to principal only
3. Fully Registered
4. Book Entry
Cert avail? Coupons?

Cert Avail? Coupons
1. Yes; Physical
2. Yes; Physical
3. Yes; Electronic/mail payment
4. No; Electronic/mail payment

3

Bond
Premium means ____ par
Discount means _____par

Premium means at par
Discount means below par

4

Bond
Par Value

Face value or principal
$1000

5

Bond
Maturity or due date

-Quoted by mm/dd/yy
-Date for return of principal and last interest payment

6

Bond
Interest Rate

-Coupon rate or nominal yield
-Fixed percentage
-Stated annually, paid semi-annually

7

Bond can have
Long or short coupon issues

Long - more than 6 months
Short - less than 6 months

8

Features of Bonds

Accrued Interest
-Interest is due on since ____
-The buyer pays the seller the market price plus the accrued interest

Interest is due on since the last interest payment

9

Call Features for Bonds - Advantages to the Issuer

-In-Whole
-Partial (Lottery/Sinking Fund)
-Called bonds do not continue to receive interest

10

Types of Corporate Bonds
Secured - backed by what?
Unsecured

Secured - Backed by some for of collateral
Unsecured - backed by issuers full faith and credit , some debentures may be convertible into shares of common stock

11

What is a debenture

unsecured note

12

Zero Coupon Bond and OID

Pays no periodic interest
-issued at deep discount, but matures at face value (par)
-Taxes paid on earnings reported but not received (phantom interest)
-Traded flat (without accrued interest)

OID Interest - Original Issue Discount

13

Credit Ratings
1. Who pays for a bond to be rated?
2. What's the concern?

1. Issuer
2. Risk of default

14

Investment grade is

S&P/Fitch
AAA
AA
A
BBB
Moddy's
Aaa
Aa
A
Baa

15

Interest Rate Risk
When market interest rates change, the market price of a bond changes in the ____ direction

opposite direction

16

When interest rate change which bonds Longest or Shortest have the largest price change?

Longest

17

Bond Pricing
Bond prices are stated as ____

Percentages of par

1% or 1point for a bond: $10

18

Fractional form 100
Decimal ___
Dollar ____

Fractional form 100
Decimal 100%
Dollar $1,000

19

Pricing of U.S. Government Treasuries

How are T-Notes, T-Bonds and Agency Securities priced - as a percentage of what?

A percentage of par and fraction - 1/32

20

Quotation - 87-16 means

Rewritten - 87 16/32
Decimal - 87.50%
Dollar price - $875.00

21

Quotation - 106.28

Rewritten - 106 28/32
Decimal - 106.875
Dollar price - $1068.75

22

Bond Yields
Nominal Yield means

Same as Coupon; fixed

23

Bond Yields
Current Yield means

Annual Interest / Current Market Price

24

Bond Yields
Yield to maturity or Basis

-Investor's total overall yield
-Measured to bond's maturity

25

If a bond is callable the lower of Yield-to-Maturity or Yield-to-Call will be stated on the ______.

trade confirmation.

26

Current Yield Calculation
Nominal Yield is 8%, 9%, 6 1/2%
Bond Price is $1,000, $1,125, $812.50
What is the calculation of current yield:

Calculation of current yield is:
-80/1000 = 8%
-90/1,125 = 8%
-65/812.50 = 8%

27

Bonds selling at a discount use yield to ____

Yield to maturity

28

Bonds selling at a premium use yield to ____

yield to call

29

5-1 Par value of a bond is

-principal
-face value
-the amount the issuer agrees to pay the investor when the bond matures

30

5-2 BCG Corp issued a corporate bond with a coupon rate of 8%. An investor who purchases $10,000 worth of the bond will receive an annual interest payment of:

$800