Flashcards
Chapter 6 Cue Cards
Flashcards do conjunto (26)
- 1Governments and Corporations borrow money for long term by issuing securities called ________BONDS
- 2Interest payment paid to bondholders is a ____________ paymentCoupon
- 3Payment at maturity of bond is called:Face Value, Principal or Par Value
- 4Date when bond will be paid off...Maturity Date
- 5What is the coupon rateAnnual interest payment divided by face value
- 6Interest Rate (aka. Discount rate) is the rate at which cash flows from bond are discounted to determine PV T/F?True
- 7Coupon Rate and Discount Rate are the same (T/F)False
When they are not, the price of bond is not same as face value - 8Price of a bond is PV of all future cash flows aka PV of coupon payments and face value of bond T/F?True
- 9When does bond sell at face value?When Coupon Rate = Required Return
- 10What does it mean: Bond sells at a premiumCoupon rate is higher than required return
Therefore bond sells above face val - 11What does it mean: Bond sells at a discountCoupon rate is lower than required return
Therefore bond sells below face val - 12Current Yield is..?Annual Coupon payment divided by bond price
- 13Yield to Maturity (YTM) is...?Interest rate for which the present value of the bonds payments equals the price
- 14Rate of Return is...?Earnings per period per dollar invested
Formula = Coupon income + price change /
Investment - 15Taxes reduce the rate of return on an investment T/FTrue
- 16What is a Real Return BondBonds with variable nominal coupon payments, determined by fixed real coupon payment and inflation
- 17What is the Fisher EffectNominal Interest rate is determined by real interest rate and expected rate of inflation
- 18What is Expectations TheoryAn explanatory theory that shows why there are different shapes of the yield curve
- 19What is interest rate risk?Risk in bond prices due to fluctuations in interest rates
- 20Longer term bonds get hit softer than shorter term bonds by interest rate Changes T/FFalse
- 21Lower Coupon Bonds get hit harder than bonds with higher coupons T/FTrue
- 22What is default riskBond issuer may default on bonds
- 23What is a Default premiumDifference between promised yield on a corporate bond and yield on Canada bond with same coupon and maturity
- 24Bond rating companies (x3)Dominion Bond Rating Service
Moodys
Standard and Poor's - 25BBB+ are: ________________ bonds BB - are : _______________ bondsInvestment Grade (+)
Speculative/High Yield/Junk (-) - 26Types of Bonds: (x6)Zero-Coupon
Strip
Floating Rate
Convertible
Callable
Canada Call