Chapter 6 Flashcards Preview

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Flashcards in Chapter 6 Deck (32):
1

Coupon

Stated interest payment made on a bond

2

Face Value

Principal amount of a bond that is repaid at the end of the term. Also, par value.

3

Coupon Rate

Annual coupon / Face Value of Bond

4

Maturity

Date on which principal amount of a bond is paid

5

Yield to Maturity (YTM)

Rate required in the market on a bond

6

Current Yield

Bond's Annual Coupon / Price

7

Indenture

Written agreement between corporation and the lender detailing the terms of the debt issue

8

Registered Form

Form of bond issue in which the registrar of the company records ownership of each bond; payment is made directly to the owner of record

9

Bearer Form

Form of bond issue in which the bond is issued without record of the owner's name; payment is made to whomever holds the bond

10

Debenture

Unsecured debt, usually with a maturity of 10 years or more

11

Note

Unsecured debt, usually with a maturity under 10 years

12

Sinking Fund

Account managed by bond trustee for early bond redemption

13

Call Provision

Agreement giving corporation the option to repurchase the bond at a specific price prior to maturity

14

Call Premium

Amount by which the call price exceeds par value of bond

15

Deferred Call Provision

Call provision prohibiting the company from redeeming bond prior to a certain date

16

Call Protected Bond

Bond that currently cannon be deemed by issuer

17

Protective Covenant

Part of the indenture limiting certain actions that might be taken during the term of the loan, usually to protect lender

18

Zero Coupon Bond

Bond that makes no coupon payments and thus is initially priced at a deep discount

19

Bid Price

Price a dealer is willing to pay for a security

20

Asked Price

Price a dealer is willing to take for a security

21

Bid-Ask Spread

Bid Price - Asked Price

22

Clean Price

Price of a bond net of accrued interest

23

Dirty Price

Price of a bond including accrued interest; aka full or invoice price.

This is price the buyer actually pays.

24

Fischer Effect

Relationship between nominal returns, real returns, and inflation

25

Fischer Effect Equation

1 + R = (1 + r) X (1 + h)

26

Term Structure of Interest Rates

Relationship between nominal interest rates on default-free, pure discount securities and time to maturity; that is, the pure time value of money

27

Inflation Premium

Portion of a nominal interest rate that represents compensation for expected future inflation

28

Interest Rate Risk Premium

Compensation investors demand for bearing interest rate risk

29

Treasury Yield Curve

Plot of the yields on Treasury notes and bonds relative to maturity

30

Default Risk Premium

Portion of a nominal interest rate or bond yield that represents compensation for the possibility of default

31

Taxability Premium

Portion of a nominal interest rate or bond yield that represents compensation for unfavorable tax status

32

Liquidity Premium

Portion of a nominal interest rate or bond yield that represents compensation for lack of liquidity