Debt Securities Flashcards
(83 cards)
1
Q
What is the structure for series bonds?
A
different issue dates, same maturity date
2
Q
What is the structure for Term bonds?
A
all bonds have same maturity date
3
Q
Serial Bonds
A
same issue date, staggered maturity dates
4
Q
Balloon Maturity
A
large amount that comes due near final maturity date
smaller payments, then a big one near maturity
5
Q
Corporate debt due more than 1yr from issue date are __________
A
Funded Debt
coporate bonds, notes, bank loans
6
Q
Bearer bonds are _______ and need ______ to collect interest
A
not registered, interest coupons
7
Q
Registered as “Principal only” are _______ to an investor. Must attach ____________ for interest.
A
registered to an investor, interest coupons to attach for interest
8
Q
A
9
Q
Standard and Poors Line between investment and speculative grade
A
Between BBB and BB
10
Q
Moody’s Line between investment and speculative grade
A
Between Baa and Ba
11
Q
How many years are till maturity are short-term bond
A
1-3 years
12
Q
How many years to maturity are longer term bond
A
> 10 years
13
Q
Secured Bond are bonds that ___________
A
conservative, secured by guarantee or collateral
14
Q
Mortgage Bond
A
Secured Bond
secured by a mortgage
3 types
15
Q
a Closed-End Mortgage Bond is property….
A
property used to secure loan cannot be used to secure other future loans
16
Q
Open-end Mortgage Bonds
A
property can be used to secure loan and all debts
higher risk, higher yield
17
Q
General Mortgage bonds allows a corporation to _________ as collateral
A
pledges all mortgageable properties of a corporation as collateral
18
Q
Equipment Trust Certificate
A
secured bond
issued by transportation companies to buy new equipment
secured by new equipment
not callable, issued in serial form, rarely defaults
19
Q
Collateral Trust Certificate use stocks use _______ as collateral
A
issued by company that uses stocks of other corporations as collateral
20
Q
Guaranteed Bonds
A
guaranteed by a company other than the one issuing them
21
Q
Parity Bonds have ______ as other bonds previously issued
A
equal claim or rights
22
Q
Unsecured Bonds
A
Debentures and Subordinated Debentures
not secured by collateral
less safe
23
Q
Debenture
A
debt back by “good faith and credit” of the issuing corp
24
Q
Subordinated Debenture hold a _____ claim
A
debenture bond that holds a lesser or “junior” claim
paid after higher level debenture claims
25
Income, Junk, and Fallen Angel Bonds are (risky/safe)
Risky
Lack solid credit record of issuer
Higher coupon rate
26
Junk bonds/high-yield bonds
issued by companies w/out a long track record of sales/earnings; questionable credit strength
more volatile, higher yields
rated BB or lower or not rated at all
27
Fallen Angels
bonds issued as "investment grade" but have been downgraded to Junk Bond rating
28
Low quality bond vs high quality bonds
low quality = higher yields; lower market prices
high quality = lower yields, higher market prices
29
Income or Adjustment Bonds are used to avoid
issued by companies in financial difficulty trying to avoid bankruptcy
promise to pay interest only if they have sufficient earnings
risky, trade flat - no accrued interest
30
Zero-coupon Bonds (zr)
sold at a deep discount
pays not interest while bonds are outstanding
no semi-annual, nor accrued interest
issued at discount
lump sum paid at maturity
purchased by investors seeking accumulation of capital
most volatile of all fixed income securities
31
Accretion is _____ interest which has
the amount of implied interest which has accumulated on a bond purchased at a discount
to calculate accretion:
purchase date, purchase price, dated date, maturity date; NOT current market value
32
Zero-Coupon Bond Phantom Income
taxed annually based on increased value of the security; received no actual income
33
Callable Bonds
Bonds that redeemed early at a pre-established premium price, after a specific date (call date set by "call provision"). Typically done if bond price is low (interest rates are up)
34
Are call features are ___________ to the issuer and _______________ to investors
Advantageous, disadvantageous
Low call price would be attractive for an issuer
high call premium or price not attractive to issuer
35
what is the fixed time period in which bonds cannot be recalled?
what do bondholders want to happen to the interest rate and bond during this time?
call protection
interest rates to decline, bond prices to rise
36
Higher the coupon rate the _________ the chance the issue will call the bond. Why?
greater; issuer can replace the higher interest with a new bond at a lower interest rate
37
__________ and __________ may be callable. _________ is never callable.
bonds and preferred stock; common stock
38
What 3 things happens when a company calls its bonds?
1. bondholder received the "call premium' plus accrued interest. Premium is additional compensation on top of the par value of the bond for the early redemption
2. credit worthiness increases (less debt)
3. debt-to-net worth ratio improves
39
Issuers must give investors a _________ stating the date the bonds will be redeemed.
During this time, investors may convert the __________, _______, or ________.
"notice of call"
convert the bonds, sell the bonds, wait to redeem the bonds
investors choose option to put the most money in their pocket
40
What can convertible bonds convert to?
common stock; not considered a taxable event
41
The specific rate bonds are converted to common stock is the _______. It show how many share common stock an investor would receive
conversion price
42
Formula to calculate the conversion price of a bond to common stock
Par Value / Conversion Price = Common Share Received
Ex. Conversion price = $50
Par Value = $1000
$1000 / $50 = $200 common shares
43
The coupon rate of a convertible bond is ________ than on non-convertible bonds of the same quality.
lower
44
Convertible bonds have more _______ than non-convertible secuirities bc the convertibility is tied to the market value and bc stocks fluctuate more than preferred stock.
volatility
45
When there is a sharp decline in interst rates, companies will _______. They will sell new bonds, the proceeds will be use to retire an outstanding issue.
volatility
46
What is a Collateralized Obligation Loan (CMO)?
a bond secured by a pool of mortgage loans
They are mortgage-backed securities
47
What is a money market?
High quality, short-term debt instrument
48
What debts included in a money market?
Treasury bills
Negotiable Certificate of Deposits (CDs)
Commercial Paper
Banker Acceptance's
49
Negotiable CD's
Time deposit
Issued and guaranteed by banks
$100k minimum
fixed maturity under 1 yr
penalty for early withdrawal/maturity
Long term CDs may have 3,5 or 10 year maturities
50
What is a commercial paper?
an unsecured promissory note issued at a discount. used to fund daily operations of a corporation.
max maturity of 260 days
51
What are Banker's Acceptances?
used to finance foreign trade, like a letter of credit
least liquid of all money market accts
52
What is exchange risk?
associated with foreign and sovereign debt issues
53
Treasury Bills are ______ -term debts
They are low risk and considered ______
Sold at ______ and redeemed at par
Available in 1,2,__,___ and ____ month maturities
Is extremely liquid - true or false
Subject to _____ tax only
Minimum denomination is $_____
(Callable/not callable) prior to maturity.
Fixed rate of interest - true or false
Taxed as capital gains or interest income?
short
Risk-free investment
discount
3, 6, 12
true
federal
100
not callable
false
interest income
54
Treasury Notes, bonds, and TIPS have the following in common:
Minimum denomination is $_____
Fixed rate of interest - true/false
Exempt from _______ and ______ taxes
Regular way settlement in secondary market is T + ____
Regular way settlement in primary auction market is T + ____
$100
true
state and local
T +1
T+3
55
Treasury notes have maturities of ____ to ____ years
They are issued as callable - true/false
2 - 10 years
false
56
Treasury bonds have maturities of ___ to ___ years
they are issued as callable - true/false
10 - 30 years
false
57
One point on a treasury note and treasury bond is equal to $_____ and fractions of points are in 1/____.
This is similar to _______ bonds
$10
1/32
government
58
TIPS stands for ________
Treasury Inflation-Protected Securities
59
TIPS are treasury notes and bonds whose interest and payments are _______ to the current inflation rate
indexed
60
The fixed interest rate is applied to _____, not par of $1000
the inflation-adjusted principal value
61
Tips are auctioned in ____, October, and _____
July, October, and January
62
What do TIPS do best amongst the treasury securities?
Preserve capital and hedges against inflation
63
STRIPS stands for _________
Separate Trading of Registered Interest and Principal Securities
64
STRIPS extends to these different securities
1. TR
2. Zero-Coupon Treasury Bonds
3. Stripped Treasuries
Treasury Receipts (RTs)
Zero-Coupon Treasury Bonds
Stripped Treasuries
65
STRIPS certificates that represent _________
a portion of a trust with Treasury bonds as the underlying security
66
Treasury receipts are ________
stripped coupon treasury bonds
67
STRIPS are taxed _______
they are very volatile - true/false
All interest is paid ________
Interest and principal payments are guaranteed-true/false
TR's are taxable - true/false
TR are usually purchased for retiremets that have no _______
annually
true
at maturity
true
true
currenty tax liability
68
Regular Way Settlement fpr Government Securities in secondary market
T + 1
69
Series EE Savings Bonds are
nonmarketable givernment debt
70
FNMA or Fannie Mae stands for ______
FHLMC or Freddie Mac for ________
GNMA or Ginnie Mae for _________
Federal National Mortgage Association
Federal Home Loan Mortgage Corp
Govt National Mortgage Association
71
Fannie Mae, Freddie Mae, and Ginnie Mae are __________ that provide financing for ____________
government agencies or government-sponsored corporations;
the housing market
72
Municipal Bonds are issued by ______ and ______ government entities.
state and local
73
The tax benefits of investing in municipal bonds include
Interest exempt on federal income tax
may also be exempt from state and local taxes
74
General Obligation Bonds
are also known as ______
full faith and credit bonds
75
General obligation bonds are ________
principal and interest are secured from _______
they require _________
general obligation of the issuing municipality
taxes
voter approval
76
Revenue Bonds come from ________
require citizen vote -true/false
count toward consitutional/statutory limit on amount of debt - true/false
not payable from taxes - true/false
revenue generating facilities such as toll road or bridge
false
false
true
77
With Industrial Development Bonds aka _________ sales of bonds are on behalf of ________ to construct/purchase facilities that are then __________
interest and principal is payable by the _______ who is ultimately responsible for the debt
Substantial Users may also be taxed -true/false
Industrial Revenue Bonds
corporation
purchased by or leased to a private user
company
true
78
Municipal Yield to Corporate Yield formula
Municipal Yield
-------------------------
(100% - Investor's Tax Rate)
79
Corporate Yield to Municipal Yield formula
Corporate Yield x (100% - Investor's Tax Rate)
80
Alternative Minimum Tax was designed __________
AMT may be applied to some municipal bonds issued by private industry companies that provide public services (ex waste water) - true/false
to tax even the wealthiest individuals, trusts, estates, and corporations
True
81
The Official statement ________ be provided to customers who purchase new bonds and upon request for ________
must
Broker-Dealers
82
With Negotiated Deals an _______ is hired to handle distribution of new issue _________ bonds
An ______________ describes the terms and interest
underwriter
Revenue Bonds
underwriting agreement
83
