Bond Terminology and Concepts, Quizzes of French Philology

Download Bond Terminology and Concepts and more Quizzes French Philology in PDF only on Docsity! TERM 1 water in french DEFINITION 1 look it up TERM 2 cat in french DEFINITION 2 ketsueire TERM 3 desk in french DEFINITION 3 deskiliere TERM 4 long-term debt securities DEFINITION 4 Bonds OR Contractual promise to pay future cash flows to investors TERM 5 The issuer of the bond is obligated to pay DEFINITION 5 Interest (time: semiannual or annual) Face value at maturity TERM 6 investors expected rate of return if the bond is held to maturity DEFINITION 6 YTM the annual yield that equates the future coupon and principal payments with the bond price TERM 7 premium vs. discount bond DEFINITION 7 Premium Bond YTM < coupon rate Discount Bond YTM > coupon rate TERM 8 The value of which type of bond is more sensitive to changes in interest rates than the value of otherwise comparable coupon bonds. DEFINITION 8 discount bonds TERM 9 why are low coupon bond prices more sensitive to change in "interest rates"? DEFINITION 9 the PV of face value at maturity is a major proportion of the price with coupons being low TERM 10 which type of bond is more sensitive to given changes in "market rates"? Why? DEFINITION 10 long term bonds Changes in market rates are compounded many times for later coupon and maturity value, impacting price (PV) significantly TERM 21 high yields on long term bonds happen bc DEFINITION 21 investors beleive rate will rise TERM 22 low yields on long term bonds happen bc DEFINITION 22 investors expect rates to fall TERM 23 when interest rates do not change over timeline of the bond, what will happen to the price of a bond as it approaches maturity DEFINITION 23 The prices will gradually increase to par value TERM 24 R_d= DEFINITION 24 return on debt OR coupon rate if bond on par TERM 25 when bond interest rate goes up, bond prices DEFINITION 25 go down TERM 26 the steeper the curve, the ___ the int rate of a bond DEFINITION 26 more sensitive TERM 27 D_b (duration) gives us DEFINITION 27 the amount of time (years) it takes to do one cash flow TERM 28 Maturity simply identifies how much time elapses until final payment but it ignores DEFINITION 28 all information about the timing and magnitude of interim payments that's why we have duration TERM 29 Duration measures DEFINITION 29 bond price elasticity how price sensitive a security is to a change in interest rates The longer a bonds duration, the greater its sensitivity to interest rate changes Duration is a measure of effective maturity that incorporates the timing and size of a security's cash flows TERM 30 what's the duration of a zero-coupon bond DEFINITION 30 bonds term to maturity TERM 31 what's duration of a coupon bond compared to the bond's time to maturity? DEFINITION 31 The duration of a coupon bond is always less than the bonds term to maturity TERM 32 where's the duration on the graph? what does steepness represent? DEFINITION 32 as the steepness of the slope at any given point in the curve steeper slope = greater duration TERM 33 higher elasticity means DEFINITION 33 greater price risk TERM 34 larger changes in price for a given change in interest rates represents DEFINITION 34 longer duration longer time to maturity TERM 35 smaller change in price for a given change in interest rates represents DEFINITION 35 larger coupon TERM 46 T/F: The spot rates are (geometric) averages of the forward rates DEFINITION 46 True TERM 47 T/F: The pure expectations theory suggests that the expected return on a series of short- term securities equals the expected return on a long-term security. DEFINITION 47 True TERM 48 liquidity premium theory says investors will prefer the short-term securities because of DEFINITION 48 a preference for liquidity. - Investors prefer short-term, more liquid, securities - Explains upward-sloping yield curve TERM 49 The Liquidity Premium Theory incorporates investor expectations of DEFINITION 49 liquidity risk in establishing market rates. TERM 50 the size of the liquidity premium will be positively related to DEFINITION 50 maturity TERM 51 a) pure expectations b) Liquidity always causes the yield curve to DEFINITION 51 a) slope up or down, depending on expectations of future rates b) be steeper TERM 52 define: Derivative DEFINITION 52 an asset that derives its price from an underlying asset (stock) TERM 53 examples of derivatives DEFINITION 53 Options, futures, forwards, swaps 2 types of options- call and put TERM 54 define: call or put option DEFINITION 54 A contract that gives the owner the right, but not the obligation, to buy or sell a stock at a fixed price (exercise or strike price) on or before a given date (expiration date) TERM 55 call vs. put DEFINITION 55 call: buy put: sell TERM 56 signals of: a) buying a call option b) selling a put option DEFINITION 56 a) bullish signal (think good of company) b) bearish signal (think bad of the company) TERM 57 diff b/w buying call and selling put? also? DEFINITION 57 same shit (bullish position) but graphs tell us call holder= CHOICE. when price is high bc it can keep rising put seller (writer)= OBLIGATION. must sell when price is low bc it will eventually rise TERM 58 diff b/w selling call and buying put? also? DEFINITION 58 same shit (bearish position) but graphs tell us call seller= OBLIGATION- must sell when price is high put buyer= CHOICE. to wait when stock is low TERM 59 term for a) buyer b) seller DEFINITION 59 a) long b) short TERM 60 2 parts to price of an option and formulas DEFINITION 60 Intrinsic value: amount in money- if negative it's zero Time Value: current stock price TERM 71 T/F: The put writer believes that the underlying security's price will fall DEFINITION 71 FALSE! The put writer believes that the underlying security's price will rise OPPOSITE OF PUT BUYER The writer sells the put to collect the premium TERM 72 what happens to stock price when company sells its own put options DEFINITION 72 goes up TERM 73 premium is determined by ___ and there's no ___ DEFINITION 73 market forces; free lunch TERM 74 if not exercised b4 the expiration date, an option DEFINITION 74 expires and no longer has value TERM 75 Each contract is worth DEFINITION 75 100 shares TERM 76 as these go up, value of call goes up: DEFINITION 76 directly related with call: stock price volatilty time to expiration interest rate TERM 77 as these go down, value of call goes up: DEFINITION 77 inversely related with call: exercise price TERM 78 as these go up, value of put goes up: DEFINITION 78 directly related with put: exercise price volatility time to expiration TERM 79 as these go up, value of put goes down: DEFINITION 79 inversely related with puts: stock price interest rate TERM 80 formula: put call parity DEFINITION 80 S+P=B+C S=stock, P= put; B=bond; C=call TERM 81 why is volatility good for buying options DEFINITION 81 you can gain and not have much downside risk TERM 82 price of american option would be ___ compared to European DEFINITION 82 greater than or equal to TERM 83 T/F: you can sell European option early DEFINITION 83 True BUT YOU CAN'T EXERCISE IT EARLY TERM 84 why are employee stock options given? DEFINITION 84 to reduce agency problem TERM 85 where is payoff on graph DEFINITION 85 same line just on the x axis