Bond Terminology and Concepts: Definitions and Interrelationships, Quizzes of Finance

Download Bond Terminology and Concepts: Definitions and Interrelationships and more Quizzes Finance in PDF only on Docsity! TERM 1 Bond DEFINITION 1 an interest only loan TERM 2 par value (face value) DEFINITION 2 the principal amount of a bond that is repaid at the end of the term TERM 3 coupon rate DEFINITION 3 annual coupon / face value TERM 4 coupon payment DEFINITION 4 the stated interest payment on a bond TERM 5 maturity date DEFINITION 5 the stated date on which the principal amount of a bond is paid TERM 6 yield or yield to maturity DEFINITION 6 the rate required in the marked on a bond TERM 7 Note DEFINITION 7 As interest rates go up... bond prices go down TERM 8 Par Bond DEFINITION 8 YTM = Coupon ratethen par value = bond price TERM 9 Discount Bond DEFINITION 9 YTM > Coupon ratethen par value > bond price TERM 10 Premium bond DEFINITION 10 YTM < Coupon ratethen par value < bond price TERM 21 Secured Bond DEFINITION 21 bonds with collateral or mortgage TERM 22 Senior bonds DEFINITION 22 bonds be paid earlier when the issuer is liquidated TERM 23 call option DEFINITION 23 an issuer's right to repay earlier than a final maturity TERM 24 put option DEFINITION 24 an investors' rights to request for an issuer to repay early TERM 25 Treasury Securities DEFINITION 25 - federal government debt- t bills- t notes- t bonds TERM 26 Municipal securities DEFINITION 26 - Debt of local and state governments- varying degrees of default risk, rated similar to corporate debt TERM 27 T bills DEFINITION 27 pure discount bonds with original maturity of one year or less TERM 28 t notes DEFINITION 28 coupon dept with original maturity between one and ten years TERM 29 t bonds DEFINITION 29 coupon debt with original maturity greater than ten years TERM 30 zero coupon bonds DEFINITION 30 - make no periodic interest payments- can't sell for more than par value- deep discount bonds or original issue discount bonds (oid's) are other names TERM 31 floating rate bonds DEFINITION 31 - coupon rate floats depending on some index value- ex) adjustable rate mortgges inflation linked treasuries- coupon may have a collar limiting its fluctuations TERM 32 Bond markets DEFINITION 32 primarily over the counter transactions with dealers connected electronicallylarge number of bond issues, low daily volume TERM 33 clean price DEFINITION 33 quoted price TERM 34 dirty price DEFINITION 34 price actually paidquoted price plus accrued intrest TERM 35 real rate of interest DEFINITION 35 change in purchasing power TERM 46 constant dividend growth DEFINITION 46 the firm will increase the dividend by a constant percent every period TERM 47 supernatural growth DEFINITION 47 dividend growth is not consistent initially, but settles down to constant growth eventually TERM 48 zero growth DEFINITION 48 - dividends are expected at regular intervals forever- called a perpetuity TERM 49 net present value DEFINITION 49 the difference in PV between the market value of a project and its cost TERM 50 if the NPV is positive, Accept the project DEFINITION 50 if the NPV is positive, you should ____ the projectmeans it is adding value to the firm TERM 51 IRR Internal Rate of Return DEFINITION 51 the return that makes the NPV = 0- decision rule: accept the project if the ___ is greater than the required return TERM 52 mutually exclusive projects DEFINITION 52 a situation in which taking one prevents the taking of others TERM 53 Profitability Index (PI) DEFINITION 53 the PV of an investment's future cash flows divided by its initial costmeasures the benefit per unit cost, based on the time value of moneyvalue of 1.1 implies $1 investment, creates $0.10 value TERM 54 expected returns DEFINITION 54 average if the process is repeated many times in different states of the economy TERM 55 risk premium DEFINITION 55 the difference between the return on risky investment and that on a risk free investment TERM 56 variance DEFINITION 56 is the weighted average of squared deviations TERM 57 standard deviation DEFINITION 57 the square root of the variance TERM 58 portfolio DEFINITION 58 collection of assets TERM 59 portfolio weights DEFINITION 59 the percent of a portfolio's total value that is in a particular asset TERM 60 portfolio expected return DEFINITION 60 the weighted average of the expected returns of the respective assets in the portfolio