Finance Ch 5 Bonds
Card Set Information
Finance Ch 5 Bonds
Finance Ch 5 Bonds
A ___ is a long term contract under which a borrower agrees to make payments of interest and principal on a specific date.
___ bonds are issued by state and local governments and the ___ earned is exempt from federal taxes.
The face value of a bond is refered to as its ___ value and is usually set at $___.
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
The date on which the par value is paid to the bondholders is call the ____ date.
A ___-___ bond is one whose interest rate fluctuates with shifts of the general level of interest rates.
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.
A legal document that sets the parameters of a bond issue is called?
In meeting its sinking fund requirements, a firm may ___ a bond or purchase them on the open ___.
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.
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, V
, is its ___ value of this payment stream.
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.
Market interest rates move in the ___ direction from one another.
rate of return
earned by purchasing a bond and holding it to maturity is know as its ___ to ___.
Yield to Matuity
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.
A bond secured by real estate is call a ___ bond.
___ bonds are issued by the Federal Government aand are not exposed to default risk.
___ bonds only only interest if interest is earned.
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.
Any bond originally offered at a proice significantly below its par value is called an original issue ___ bond.
Once a bond has been on the market for awhile, it is classified as an oustanding or ___ bond.
The ___ yield is the annual coupon rate divided by the bonds current price.
Annual Coupon Rate/Current Bond Price
A ___ fund provision facilitates the orderly retirement of bonds.
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)
A ___ provision gives the issuing firm the right to call bonds for redemption under specified terms prior to the normal maturity rate.
A ___ bond sells above par value when the going interest rate falls below the coupon rate.
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
A ___ is an unsecured bond because it provides no lien against specific property.
A ___ bond call occurs when a bond is not callable until several years after they are issued. These bonds are said to have call ___.
___ bonds are securities that are exchanged for shares of common stock at a fixed price at the option of the bond holder.
___ bonds contain provisions that allow the bonds investors to sell the bonds back to the company prior to maturity at a specified date.
For bonds with similar coupons, the longer the maturity, the greater exposure to ___ rate risk.
___ risk is also called credit risk.
A ___ bond sells below par value when interest rates are above the coupon rate.
The going rate on a bond consists of a ___ yield plus a ____ ____ yield.
The market value of a bond will always approach its ___ value as its maturity date approaches, provided a firm does not go ___.
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.
Bond are traded in the ___ ___ ___ market.
Over the counter