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
