Finance Online Chapter 7

What does a bonds coupon payment refer to? the interest payment or payments paid by a bond
When is a bond issuer said to be “in default?” If it doesn’t pay the interest or the principal in accordance with the terms of the indenture agreement OR if it violates one of more of the issuers restrictive covenants
What is a sinking fund provision? A bond contract that requires the issuer to retire a specified portion of the bond issue each year
What is a convertibility provision? Allows a bondholder or preferred stockholder to convert their bond or preferred share, respectively, into a specified number or value of common shares.
What does a call provision do? gives the issuer the right to call, and force redemption of, a bond at specified times and under specific conditions.-most require the issuer to pay the bondholders an amount greater than the bonds pay or maturity value
What is call provision? prevents the issuer from calling a portion or the entire issue for several years during the early years of the bond issue
What does a bonds coupon rate determine?What about bondholders required return? 1) the interest based return that the bond will pay2) the return the bondholder would like to receive from a given investment
When do we not want to call bonds? If YTC>YTM
If coupon rate is YTM, it sells at _____________ 1) Discount2) Par3) Premium
Do collable bonds or noncollable bonds offer a higher yield? Collable
Assuming all else is equal, long term securities are exposed to ___________________________ than short term securities. higher interest rate risk
What are Senior Mortgage Bonds these bonds are collateralized securities with first claims in the event of bankruptcy
Describe subordinate debendetures These bonds have a claim on assets only after senior debt has been paid in full
What are debentures? these bonds are traded in the bond markets based on investors belief that the issuer will not default on the repayment.These bonds have no collateral and usually offer higher yields
What is an indenture? a legal document that details the rights of bondholders. If the indenture includes a sinking funds provision, the bond will have less default risk.

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