Finance Ch 5 Bonds

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Anonymous
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72388
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Finance Ch 5 Bonds
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2011-03-12 11:21:50
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Finance Bonds
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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.
    Bond
  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.
    Interest

    Coupon Rate / Par Value Bond
  5. The date on which the par value is paid to the bondholders is call the ____ date.
    Maturity
  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.
    Zero
  8. A legal document that sets the parameters of a bond issue is called?
    Indenture
  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.
    Present
  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.
    Opposite
  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.
    Mortgage
  17. ___ bonds are issued by the Federal Government aand are not exposed to default risk.
    Treasury
  18. ___ bonds only only interest if interest is earned.
    Income
  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.
    Discount
  21. Once a bond has been on the market for awhile, it is classified as an oustanding or ___ bond.
    Seasonsed
  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.
    Sinking
  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)
    Refunding
  25. A ___ provision gives the issuing firm the right to call bonds for redemption under specified terms prior to the normal maturity rate.
    Call
  26. A ___ bond sells above par value when the going interest rate falls below the coupon rate.
    Premium
  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.
    Debenture
  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.
    Convertable
  31. ___ bonds contain provisions that allow the bonds investors to sell the bonds back to the company prior to maturity at a specified date.
    Putable
  32. For bonds with similar coupons, the longer the maturity, the greater exposure to ___ rate risk.
    Interest
  33. ___ risk is also called credit risk.
    Default
  34. A ___ bond sells below par value when interest rates are above the coupon rate.
    Discount
  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.
    Rating
  38. Bond are traded in the ___ ___ ___ market.
    Over the counter

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