EX 2 defintions

Question 1

Bearer Bonds

Answer 1

Bonds that are owned by whoever physically holds them, with no registered owner. Interest is paid to the holder.

Question 2

Indenture (Deed of Trust)

Answer 2

A legal contract outlining the terms of a bond issue, including interest rates, maturity dates, and obligations of the issuer.

Question 3

Collateral

Answer 3

Assets pledged as security for a loan or bond to ensure repayment. If the borrower defaults, the lender can claim the collateral.

Question 4

Mortgaged Securities

Answer 4

Bonds backed by real estate or other physical assets as collateral.

Question 5

Debentures

Answer 5

Unsecured bonds that rely on the issuer’s creditworthiness rather than collateral.

Question 6

Senior Debt

Answer 6

Debt that has a higher claim on assets in case of liquidation than other debts (like junior or subordinated debt).

Question 7

Sinking Fund

Answer 7

A reserve fund set aside by a company to repay bonds over time, reducing default risk.

Question 8

Protective Covenants

Answer 8

Rules in a bond contract that protect investors by restricting the issuer’s actions (e.g., limiting new debt or ensuring timely interest payments).

Question 9

Callable Bond?

Answer 9

A bond that the issuer can repay before its maturity date, usually when interest rates drop, to save on interest costs.

Question 10

Yield to Call (YTC)

Answer 10

The return an investor would earn if a callable bond is called before maturity instead of being held until maturity.

Question 11

Putable Bond

Answer 11

A bond that allows the bondholder to sell it back to the issuer before maturity, usually at a set price, offering flexibility to investors.

Question 12

Convertible Bond

Answer 12

A bond that can be converted into a specified number of shares of the issuing company’s stock, giving investors equity potential.

Question 13

Floating-Rate Bond

Answer 13

A bond with an interest rate that adjusts periodically based on a benchmark rate (e.g., LIBOR or the prime rate).

Question 14

Prime Rate

Answer 14

The interest rate that banks charge their most creditworthy customers, influencing other loan and bond rates.

Question 15

Income Bonds

Answer 15

Bonds that only pay interest if the issuer has enough earnings, making them riskier but often offering higher potential returns.

Question 16

Exotic Bonds

Answer 16

Unique or complex bonds with non-traditional features, such as catastrophe bonds, step-up bonds, or reverse convertible bonds.