Finance Ch 5 Bonds

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Finance Ch 5 Bonds
2011-03-12 11:21:50
Finance Bonds

Finance Ch 5 Bonds
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  1. A ___ is a long term contract under which a borrower agrees to make payments of interest and principal on a specific date.
  2. ___ bonds are issued by state and local governments and the ___ earned is exempt from federal taxes.
    • Municipal
    • Interest
  3. The face value of a bond is refered to as its ___ value and is usually set at $___.
    • Par
    • $1000
  4. The "coupon ___ rate" on a bond is determined by dividing the coupon payment by the par value of the bond.

    Coupon Rate / Par Value Bond
  5. The date on which the par value is paid to the bondholders is call the ____ date.
  6. A ___-___ bond is one whose interest rate fluctuates with shifts of the general level of interest rates.
    floating rate
  7. A ___ coupon bond is one that pays no annual interest but is sold at a discount bbelow par, thus provinding compensation to investors in the form of capital appreciation.
  8. A legal document that sets the parameters of a bond issue is called?
  9. In meeting its sinking fund requirements, a firm may ___ a bond or purchase them on the open ___.
    • Call
    • Market
  10. Except when the call for sinking fund purposes, when a bond issue is called, the firm must pay ___, or an amount in excess of ___ value of the bond.
    • Premium
    • Par
  11. A bond with annual coupon payments represents an annuity of INT dollars per year, plus a lump sum of M dollars at the end of N years, and its value, Vb, is its ___ value of this payment stream.
  12. At the time when a bond is issued, the coupon rate is generalll set at a level that will cause the market ___ and the ___ value of the bond to be almost equal.
    • Price
    • Par
  13. Market interest rates move in the ___ direction from one another.
  14. The rate of return earned by purchasing a bond and holding it to maturity is know as its ___ to ___.
    Yield to Matuity
  15. To adjust for semiannual coupon payments the ___ payment and interest rate must be divided by 2 and the number of ___ must be mulitplied by 2.
    • Coupon
    • Years
  16. A bond secured by real estate is call a ___ bond.
  17. ___ bonds are issued by the Federal Government aand are not exposed to default risk.
  18. ___ bonds only only interest if interest is earned.
  19. The interest rate of an ___ bond, or a ___ power bond is based on the inflation index, so that interest payments rise automatically when inflation rises, thus protecting bond holders from inflation.
    • Indexed or
    • Purchasing
  20. Any bond originally offered at a proice significantly below its par value is called an original issue ___ bond.
  21. Once a bond has been on the market for awhile, it is classified as an oustanding or ___ bond.
  22. The ___ yield is the annual coupon rate divided by the bonds current price.
    • Current
    • Annual Coupon Rate/Current Bond Price
  23. A ___ fund provision facilitates the orderly retirement of bonds.
  24. The process of using the proceeds of a new lower interest rate bond issue to retire a higher interest rate is called a ___ operation.

    (this lowers the firm's interest expense)
  25. A ___ provision gives the issuing firm the right to call bonds for redemption under specified terms prior to the normal maturity rate.
  26. A ___ bond sells above par value when the going interest rate falls below the coupon rate.
  27. If current interest rates are well below an outstanding bond's coupon rate, then a callable bond is likely to be called, and investors should expect the rate of return on the bond as the ___ to ___.
    Yield to Call
  28. A ___ is an unsecured bond because it provides no lien against specific property.
  29. A ___ bond call occurs when a bond is not callable until several years after they are issued. These bonds are said to have call ___.
    • Defered
    • Protection
  30. ___ bonds are securities that are exchanged for shares of common stock at a fixed price at the option of the bond holder.
  31. ___ bonds contain provisions that allow the bonds investors to sell the bonds back to the company prior to maturity at a specified date.
  32. For bonds with similar coupons, the longer the maturity, the greater exposure to ___ rate risk.
  33. ___ risk is also called credit risk.
  34. A ___ bond sells below par value when interest rates are above the coupon rate.
  35. The going rate on a bond consists of a ___ yield plus a ____ ____ yield.
    • Current
    • Capital Gains
  36. The market value of a bond will always approach its ___ value as its maturity date approaches, provided a firm does not go ___.
    • Par
    • Bankrupt
  37. A bond's ___ is an indicator of default risk and it has a measurable influence on the bond's interest rate and the firm's cost of debt.
  38. Bond are traded in the ___ ___ ___ market.
    Over the counter