Chapter 6

Question 1

a loan to a firm, gov’t or individual.

Answer 1

Debt

Question 2

securities selling for less than par value.

Answer 2

Discounted Securities

Question 3

discounted debt instruments issued by the U.S gov’t.

Answer 3

Treasury Bills

Question 4

an arrangement where one firm sells some of its financial assets to another firm w/a promise to repurchase the securities at a later date.

Answer 4

Repurchase agreement

Question 5

overnight loans from one bank to another

Answer 5

Federal funds

Question 6

an instrument issues by a bank that obligates the bank to pay a specified amount at some future date.

Answer 6

Bankers acceptance

Question 7

a discounted instrument that is a type of promissory note, or legal IOU issued by large financially sound firms.

Answer 7

Commercial paper

Question 8

an interest earning time deposit at a bank or other financial intermediary.

Answer 8

Certificate of deposit

Question 9

a deposit in a foreign bank that is denominated in U.S dollars.

Answer 9

Eurodollar deposit

Question 10

pools of funds managed by investment companies that are primarily invested in short-term financial assets.

Answer 10

Money markets mutual funds

Question 11

a loan generally obtained from a bank or ins company on which the borrower agrees to make a series of payments consisting of interest and principal.

Answer 11

Term loan

Question 12

as long term debt instrument.

Answer 12

Bond

Question 13

interest paid on a bond or other debt instrument stated as a percentage of its face (maturity) value.

Answer 13

Coupon rate

Question 14

debt issued by a federal, state, or local government.

Answer 14

Government bond

Question 15

bonds issued by a state or local government.

Answer 15

Municipal bond

Question 16

long term debt instruments issued by corporation.

Answer 16

Corporate bonds

Question 17

a bond backed by tangible assets. First mortgage bonds are senior in priority to second mortgage bonds.

Answer 17

Mortgage bond

Question 18

a long term bond that is not secured by mortgage on specific property.

Answer 18

Debenture

Question 19

a bond which in the event of liquidation has a claim on assets only after the senior debt has been paid off.

Answer 19

Subordinated debenture

Question 20

a bond that pays interest to the holder only if the interest is earned by the firm.

Answer 20

Income bond

Question 21

a bond that can be redeemed at the bond holders option when certain circumstances exist.

Answer 21

Putable bond

Question 22

a bond that has interest payments based on an inflation index to protect the holder from loss of purchasing power.

Answer 22

Indexed purchase-power bonds

Question 23

a bond whose interest rate fluctuates with shifts in the general level of interest rates.

Answer 23

Floating rate bond

Question 24

a bond that pays no annual interest but sells at a discount below par thus providing compensation to investors in the form of capital appreciation.

Answer 24

Zero coupon bond

Question 25

a high risk high yeild bond, used to finance mergers, leveraged buyouts, and troubled companies.

Answer 25

Junk bond

Question 26

a formal agreement contract between the issuer of a bond and the bond holders.

Answer 26

Indenture

Question 27

a provision in a bond contract that gives the issuer the right to redeem the bonds under specified terms prior to the normal maturity date.

Answer 27

Call provision

Question 28

a required annual payment designed to amortize a bonds issues.

Answer 28

Sinking funds

Question 29

permits bondholders to exchange their investments for a fixed # of shares of common stock

Answer 29

Conversion feature

Question 30

debts sold by a foriegn borrower but denominated in the currency of the country where it is sold.

Answer 30

Foreign debts

Question 31

Debt sold in a country other than the one in whose currency the debt is denominated.

Answer 31

Eurodebt

Question 32

the London inter-bank offered rate; the interest rate offered by the best London banks on deposits of other large, very credit worthy banks.

Answer 32

Libor

Question 33

the average rate of return earned on a bond if its held to maturity.

Answer 33

Yield to maturity (YTM)

Question 34

the average rate of returned earned on a bond if its held until the first call date.

Answer 34

Yield to call (YTC)

Question 35

the interest payment divided by the market price of the bond.

Answer 35

Current interest yield

Question 36

the percentage change in the market price of a bond over some period of time.

Answer 36

Capital gains yield

Question 37

the risk of changes in bond prices to which investors are exposed as the result of changing interest rates.

Answer 37

Interest rate price risk

Question 38

the risk that income from a bond portfolio will vary bc cash flow must be reinvested at current market rates.

Answer 38

Interest rate reinvestment risk