Debt Securities

Question 1

Bearer Bond

Answer 1

Owner Known By Issuer: Not Known

Interest Payments: Clip Coupons

Par payment at Maturity: Must Return Physical Bond

Question 2

Principle Only Registration

Answer 2

Owner Known By Issuer: Known

Interest Payments: Clip Coupons

Par payment at Maturity: Automatically Paid

Question 3

Fully Registered

Answer 3

Owner Known By Issuer: Known

Interest Payments: Automatically Paid

Par payment at Maturity: Automatically Paid

Question 4

Book/ Journal Entry

Answer 4

Owner Known By Issuer: Known

Interest Payments: Automatically Paid

Par payment at Maturity: Automatically Paid

There is no physical piece of paper that shows you are the owner of the bond it’s just kept track of by the corporation

Question 5

Collateralized Bond

Answer 5

If the corporation goes belly up these bonds use items as collateral to pay back the investors.

Question 6

Un-Collateralized Bond

Answer 6

Bond has nothing used as collateral in case company goes belly up. Only the good faith of the issuer

Question 7

Mortgage Bond

Answer 7

Backed by a pledge of large real estate

Question 8

Equipment Trust Certificates

Answer 8

Backed by a pledge of large equipment

Question 9

Collateral Trust Certificates

Answer 9

Backed by a pledge of securities owned by issuer (cant be the same company though because if it goes belly up they would be worthless)

Question 10

Debentures

Answer 10

Backed By Good Faith Only

Question 11

Subordinated Debentures

Answer 11

Backed By Good Faith only but is only payed if the debenture bonds are all paid first

Lower Claim than debentures bonds

Question 12

Adjustment / Income Bonds

Answer 12

Very Risky no interest unless the company has the income to pay it.

Question 13

Zero coupon bonds

Answer 13

No Interest rate but issued at a big discount to par value

Question 14

Convertible Bonds

Answer 14

Can be converted into the common stock of the issuing company.

The number of shares = Par Value / Conversion Price

They are sending you a check. Its $1000. How many shares can you buy with that if it costs $X/share

Question 15

Nominal Yield

Answer 15

the rate named on the bond it never changes

Question 16

Current Yield

Answer 16

the interest generated by the bond relative to its market price.

Current Yield = Annual Interest / Current Market Value (Price)

Question 17

Yield to Maturity

Answer 17

The investors overall yield for holding the bond assuming all interest is reinvested at the same rate

Question 18

Term Bonds

Answer 18

Entire amount is due at maturity

Question 19

Serial Bonds

Answer 19

Different amounts due over a series of years

Question 20

Balloon Maturity

Answer 20

A large payment is due at a set date usually there are several installment payments periodically followed by a final balloon payment at the end

Question 21

Redeemed

Answer 21

Bonds are redeemed at maturity

Question 22

Refunding

Answer 22

Instead of redeeming corporations might issue a new bond so that they don’t have to pay back a ton of money. This is called refunding

Question 23

Pre-refunding

Answer 23

Company Issues New bonds to Pay off old bonds. (so they can get better interest rates) Old bonds have AAA rating because its now funded with cash.

Question 24

Sinking Fund

Answer 24

Fund Companies save into used to pay off bond principle

Question 25

what does M mean with bonds

Answer 25

It means 1000 OR Units

IE: INVESTOR BOUGHT 10M of bonds means he bought $10,000 in bond principle

OR another way to think of it is he bought 10 units

Question 26

Warrants

Answer 26

Give the bondholder the option of buying/ selling the bond back to the company periodically Like an option.