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Flashcards in Final Ch16 Deck (19)
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1

corporate bond

debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations

2

par value

initial, principal or face value of the bond

3

coupon rate

actual interest rate on the bond

4

bond indenture

a supplement to the bond agreement covering every detail about the bond issue

* specifies all the important features of a bond, such as its maturity date, timing of interest payments, etc.

5

secured debts

debt backed or secured by collateral to reduce risk
1. mortgage agreement (real estate pledged)
2. after-acquired property clause: requires that any new property by placed under the original mortgage

6

debenture bond

unsecured, long-term corporate bond with a general claim against the corporation

7

methods of repayment (5)

1. simplest method
2. serial payments
3. sinking-fund provision
4. conversion
5. call feature

8

simplest method

single sum payment at maturity

9

serial payments

paid off in instalments over the life of the issue

10

sinking fund provision

The issuer makes periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market.

11

conversion

converting debt to common stock

12

call feature

retire or force in debt issue before maturity

13

bond yields (3)

1. coupon rate
2. current yield
3. yield to maturity

14

yield to maturity

The rate of return anticipated on a bond if held until the end of its lifetime.

15

refunding operation

When a company conducts a refunding operation, it recalls its existing bonds from the market. In exchange, a new bond issue is sold.

16

zero-coupon rate bond

- bond that does not pay interest
- return to the investor is the difference between the investors cost and the face value received at maturity

17

floating rate bond

the interest rate paid on the bond changes with market conditions

18

eurobond market

A bond issued in a currency other than the currency of the country or market in which it is issued.

19

capital (financing) lease

rental; short term doesn't usually lead to asset ownership