FIN 1 CHAPTER 6

• Bonds


  Long term debt obligations issued by corporations and govt units. Used to raise funds to support long term debt operations of the issuer
• Bond markets


  Bonds are issued and traded
• Types of bond markets


  • Treasury notes and bonds
  • Municipal bonds
  • Corporate bonds
• Capital markets


  Markets that trade debt (bonds and mortgages) and equity (stocks) instruments with maturities of more than one year
• Treasury notes (T-Notes) and bonds (T-Bonds)


  Long term securities issued by the U.S Treasury to finance the national debt and other federal govt expenditures
• STRIPS


  A treasury security in which the periodic interest payment is separated from the final principal payment
• Accrued interest


  That portion of the coupon payment accrued between the last coupon payment and the settlement day
• Municipal bonds


  Securities issued by state and local governments
• General obligation bonds


  Bonds backed by the full faith and credit of the issuer
• Revenue bonds


  Bonds sold to finance a specific revenue generating project backed by cash flows from that project
• Firm commitment underwriting


  The issue of securities by an investment bank in which the investment bank guarantees the issuer a price for newly issued securities by buying the whole issue at a fixed price from the issuer. It them seeks to resell these securities to suppliers of funds (investors) at a higher price
• Best-efforts offering


  The issue of securities in which the investment bank does not guarantee a price to the issuer and acts more as a placing or distribution agent on a fee basis related to its success in placing the issue
• Private placement


  A security issue placed with on or a few large institutional buyers
• Corporate bonds


  Long term bonds issued by corporations
• Bond indenture


  The legal contract that specifies the rights and obligations of the bond issuer and the bond holders
• Bearer bonds


  Bonds with coupons attached to the bond. The holder presents the coupons to the issuer for payments of interest when they come due
• Registered bond


  A bond in which the owner is recorded by the issuer and the coupon payments are mailed to the registered owner
• Term bonds


  Bonds in which the entire issue matures on a single date
• Serial bonds


  Bonds that mature on a series of dated, with a portion of the issue paid off on each
• Mortgage bonds


  Bonds issued to finance specific projects which are pledged as collateral for the bond issue
• Debentures


  Bonds backed solely by the general credit worthiness of the issuing firm unsecured by specific assets or collateral
• Subordinated debentures


  Bonds that are unsecured and are junior in their rights to mortgage bonds and regular debentures
• Convertible bonds


  Bonds that may be exchanged for another security of the issuing firm at the discretion of the bonds holder
• Stock warrants


  Bonds issued with stock warrants attached giving the bond holder an opportunity to purchase common stock at a specified price up to a specified date
• Call provision


  Provision on a bond issue that allows the issuer to force the bond holder to sell the bond back to the issuer at a price above the par value
• Call premium


  The difference between the call price and the face value of the bond
• Sinking fund provision


  A requirement that the issuer retire a certain amount of the bond issue each year
• Junk bond


  Bond rated as speculative or less than investment grade by bond rating agencies
• Sovereign bonds


  Government issued foreign currency denominated debt
• Bonds

  Long term debt obligations issued by corporations and govt units. Used to raise funds to support long term debt operations of the issuer
• Bond markets

  Bonds are issued and traded
• Types of bond markets

  • Treasury notes and bonds
  • Municipal bonds
  • Corporate bonds
• Capital markets


  Markets that trade debt (bonds and mortgages) and equity (stocks) instruments with maturities of more than one year
• Treasury notes (T-Notes) and bonds (T-Bonds)


  Long term securities issued by the U.S Treasury to finance the national debt and other federal govt expenditures
• STRIPS


  A treasury security in which the periodic interest payment is separated from the final principal payment
• Accrued interest


  That portion of the coupon payment accrued between the last coupon payment and the settlement day
• Municipal bonds


  Securities issued by state and local governments
• General obligation bonds


  Bonds backed by the full faith and credit of the issuer
• Revenue bonds


  Bonds sold to finance a specific revenue generating project backed by cash flows from that project
• Firm commitment underwriting


  The issue of securities by an investment bank in which the investment bank guarantees the issuer a price for newly issued securities by buying the whole issue at a fixed price from the issuer. It them seeks to resell these securities to suppliers of funds (investors) at a higher price