2417377
Description
Flashcards by dylan_earl, updated more than 1 year ago
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Created by dylan_earl
over 10 years ago
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| Question | Answer |
| Governments and Corporations borrow money for long term by issuing securities called ________ | BONDS |
| Interest payment paid to bondholders is a ____________ payment | Coupon |
| Payment at maturity of bond is called: | Face Value, Principal or Par Value |
| Date when bond will be paid off... | Maturity Date |
| What is the coupon rate | Annual interest payment divided by face value |
| Interest Rate (aka. Discount rate) is the rate at which cash flows from bond are discounted to determine PV T/F? | True |
| Coupon Rate and Discount Rate are the same (T/F) | False When they are not, the price of bond is not same as face value |
| Price of a bond is PV of all future cash flows aka PV of coupon payments and face value of bond T/F? | True |
| When does bond sell at face value? | When Coupon Rate = Required Return |
| What does it mean: Bond sells at a premium | Coupon rate is higher than required return Therefore bond sells above face val |
| What does it mean: Bond sells at a discount | Coupon rate is lower than required return Therefore bond sells below face val |
| Current Yield is..? | Annual Coupon payment divided by bond price |
| Yield to Maturity (YTM) is...? | Interest rate for which the present value of the bonds payments equals the price |
| Rate of Return is...? | Earnings per period per dollar invested Formula = Coupon income + price change / Investment |
| Taxes reduce the rate of return on an investment T/F | True |
| What is a Real Return Bond | Bonds with variable nominal coupon payments, determined by fixed real coupon payment and inflation |
| What is the Fisher Effect | Nominal Interest rate is determined by real interest rate and expected rate of inflation |
| What is Expectations Theory | An explanatory theory that shows why there are different shapes of the yield curve |
| What is interest rate risk? | Risk in bond prices due to fluctuations in interest rates |
| Longer term bonds get hit softer than shorter term bonds by interest rate Changes T/F | False |
| Lower Coupon Bonds get hit harder than bonds with higher coupons T/F | True |
| What is default risk | Bond issuer may default on bonds |
| What is a Default premium | Difference between promised yield on a corporate bond and yield on Canada bond with same coupon and maturity |
| Bond rating companies (x3) | Dominion Bond Rating Service Moodys Standard and Poor's |
| BBB+ are: ________________ bonds BB - are : _______________ bonds | Investment Grade (+) Speculative/High Yield/Junk (-) |
| Types of Bonds: (x6) | Zero-Coupon Strip Floating Rate Convertible Callable Canada Call |
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