Flashcards in Final Ch16 Deck (19)
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
initial, principal or face value of the bond
actual interest rate on the bond
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.
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
unsecured, long-term corporate bond with a general claim against the corporation
methods of repayment (5)
1. simplest method
2. serial payments
3. sinking-fund provision
5. call feature
single sum payment at maturity
paid off in instalments over the life of the issue
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.
converting debt to common stock
retire or force in debt issue before maturity
bond yields (3)
1. coupon rate
2. current yield
3. yield to maturity
yield to maturity
The rate of return anticipated on a bond if held until the end of its lifetime.
When a company conducts a refunding operation, it recalls its existing bonds from the market. In exchange, a new bond issue is sold.
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
floating rate bond
the interest rate paid on the bond changes with market conditions
A bond issued in a currency other than the currency of the country or market in which it is issued.