Flashcards in Valuation and Characteristics of Stocks and Bonds Deck (55):
A corporate ____ is a long-term debt obligation issued by corporations that normally pays interest and promises to return the principal upon maturity.
Corporate bond repayment terms are usually clearly defined and the maturity period can vary up to ___ years.
Legal protection is afforded to bondholders via the bond indenture and the _______.
The _______ declares the legal conditions under which the bond was issued and the trustee is a paid third party who ensures that the issuer does not default.
The bond indenture normally includes a sinking-fund requirement, which is a mechanism for the issuer to ____ those bonds.
The corporation makes annual or semi-annual payments to the trustee, who then uses these funds to repurchase the bonds using a ____ feature.
What are the three common features of bond issue?
A) Call feature
The ________ feature in convertible bonds allows bondholders to convert their bond into a pre-determined number of shares of stock.
The ____________ warrant allows the bondholder to purchase a certain number of shares at a stated price during a particular period.
The call feature may also contain a call price and if it is greater than the bonds par value and this amount is known as the call _______.
The call price is the stated price that the bond can be __________ at before maturity.
The call premium is the extra amount the bond was bought back that _______ the par value.
Independent agencies such as Moodys and Standard & Poors assess the ____ level of publicly traded bonds.
This is one of the main tasks of these agencies.
Debentures, subordinated debentures and income bonds are traditional _________ bonds.
_________ are a type of unsecured traditional bond that has been around for many years.
Mortgage bonds, collateral trust bonds and equipment trust certificates are _______ traditional bonds.
These bonds are secured by equipment, real estate or collateral trust.
___________ corporate bonds include zero-coupon bonds, junk bonds, floating-rate bonds, extendable notes and putable bonds.
These are more modern versions of corporate bonds.
Holders of common and preferred stock are holders of equity capital, yet the _______ of the company are given preference when making a claim to the income and assets of a company.
The creditors get paid first and they bear the least risk the debt may be secured or unsecured but they will get paid before the owners of the company, who bear the greatest risk and are paid last. In ________, the order of payment is determined by law.
______ capital is a permanent form of financing as there is no maturity date.
Equity capital does not mature and hence no __________ is required.
Long-term debts of a company normally have maturity dates between 5 to __ years.
This is the usual term of long-term debts.
_________ debt provisions are the terms and conditions under which a long-term debt is agreed.
This is the term coined for these provisions as they are the standard for this type of agreement.
Examples of standard debt provisions include maintaining good accounting records to GAAP standards, regularly providing the lender with audited financial statements, paying ____ in a timely fashion and maintaining the business as a going concern.
Accounting records and audited financial statements are critical to the lender, thereby ensuring that the borrower is running the company according to the relevant standards, with statements ______ by an independent third party.
The standard debt provisions normally present no difficulties for a ______-worthy borrower.
These provisions would not be onerous to a financially legitimate borrower, as these would normally be part of their standard business procedures anyway.
When a long-term debt agreement contains ___________ covenants, it means that certain operational and financial limitations are placed upon the borrower.
This is the definition of restrictive covenants and is a means of protecting the lender by keeping an eye on and controlling the borrowers activities.
A common restrictive covenant is ___________ , which means that subsequent borrowing from another lender will be ranked below the claims made by the original lender.
Subordination ensures that the _______ lender has their claim satisfied first before any subsequent creditors.
The ____ of long-term debt is usually greater than that of short-term debt.
It is greater because interest rates tend to be higher and there is greater risk for the lender.
A long-term loan is one made by a financial institution to a business, with an initial ________ date exceeding 1 year and may be secured or unsecured.
For a long-term load, one year is the _______ term, though it is more common to have terms of between five to twelve years.
Long-term loans generally require regular loan payments that pay off the interest and principal at the end of the term, though some also require a balloon payment upon ________.
A one-off _______ payment is when a long-term loan is paid off in a balloon payment upon maturity.
The main privilege preferred stockholders possess over common stockholders is the promise of a fixed periodic ________.
This return is fixed and expressed as a percentage or dollar amount.
The real owners of a company are the common __________ because they invest money hoping for a return in the form of dividends and hopefully, capital gain.
This is the definition of common stockholders they have no guarantee of a return on their investment, hence they are known as the real owners
The common stock can be privately owned, _______ owned or publicly owned.
Closely owned means that all the common stock is owned by a _____ group of investors, for example, a family.
Common stock can be sold with or without a ___ value.
The par value is an _____________ assigned value placed on the stock in the company's charter.
More than one class of common stock may be issued, with the fundamental difference being ______ rights.
These different classes of stock are issued to defend against a hostile merger or to increase the quantity of common stock but not assigning any voting rights to that new class. (_________ common stock).
___________ shares are those that carry more votes per share than other regular common stock.
Supervoting is granted by a company to give the holders stronger ______ rights.
A _____ statement is signed by a stockholder to pass his right to vote to another party.
This is the definition of a proxy statement
Solicitations of proxies are monitored by the ___________ and Exchange Commission (SEC) to guard against impropriety.
The ________ voting system is one where each stockholder has one vote for each share owned.
This is the definition of the majority voting system and the stockholder can vote all of his shares for each director.
In the __________ voting system, each common stock shareholder has as many votes as there are directors and votes may all be cast for one or distributed among several director(s).
Cumulative voting system is a semi-proportional voting system which empowers ________ shareholders.
The Board of _________ has the power to decide whether or not to make a payment of dividends to common stockholders.
As the leaders of the company, they make these important financial decisions.
Stock ______ allow stockholders to buy extra stocks in direct proportion to the number of stocks they already own.
This is the definition of stock rights. They are usually used by smaller companies with closely owned or publicly owned but not actively traded shares.
When new common stock shares are issued, __________ rights permit stockholders to retain a proportionate share in the business relative to the new issue.
Preemptive rights allow these stockholders to maintain their voting control and to prevent dilution of _________.
The pros of common stock are that it places a small amount of financial limitations on the company, there is no maturity date and it is flexible in increasing the company's _________ capability.