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Finance_7
Valuation and Characteristics of Bonds
| Question | Answer |
|---|---|
| A long-term (10 yr or more) promissory note issued by the borrower, promising to pay the owner of the security a predetermined, fixed amount of interest each year. | Bond |
| Any unsecured long term debt. | Debenture |
| A debenture that is subordinated to other debentures in terms of its payments in case of insolvency. | Subordinated Debenture |
| A bond secured by a lien on real property. | Mortgage Bond |
| A bond issued in a country different from the one in which the currency of the bond is denominated. | Eurobond |
| A bond issued at a substantial discount from its $1,000 face valu and that pays little or no interest. | Zero Coupon Bond |
| Any bond rated BB or below. | Junk Bond |
| A debt security that can be converted into a firm's sock at a personal prespecified price. | Convertible Bond |
| On the face of a bond, the stated amount that the firm is to repay upon the maturity date. | Par Value |
| The interest rate contractually owed on a bond as a percent of its par value. | Coupon Interest Rate |
| The length of time until the bond issuer returns the par value to the bondholder and terminates the bond. | Maturity |
| Call Provision | |
| The legal agreement between the firm issuing bonds and the bond trustee who represents the bondholders, providing the specific terms of the loan agreement. | Indenture |
| Bond Ratings | |
| The value of an asset as shown on the firm's balance sheet. It represents the historical cost of the asset rather than its current market value or replacement cost. | Book Value |
| The dollar sum that could be realized if an asset were sold. | Liquidation Value |
| The value observed in the marketplace. | Market Value |
| The present value of an asset's expected future cash flows. This value is the amount the investor considers to be fair value, given the amount, timing, and riskiness of future cash flows. | Intrinsic Value |
| Value of an Asset | |
| Yield to Maturity | |
| The ratio of a bond's annual interest payment to its market price. | Current Yield |
| 3 Bond Value Relationships | |
| The variability in a bond's value or the uncertainty that envelops the expected returns from a security caused by changes in interest rates. | Interest Rate Risk |
| A bond that sells at a discount, or below par value. | Discount Bond |
| A bond that is selling above its par value | Premium Bond |
Created by:
Wilkins188
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