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COB 300 Finance Exam #3 Definitions Questions and Answers
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COB 300 Finance Exam #3 Definitions Questions and Answers
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COB 300 Finance Exam #3 DefinitionsQuestions and Answers
Bond - Answers -A financial security that represents a promise to repay a fixed amount
of funds
- term longer than 7 years
Treasury Bonds - Answers -bonds issued by the federal government, sometimes
referred to as government bonds
Corporate Bonds - Answers -- bonds issued by corporations
- exposed to default risk
Municipal Bonds - Answers -- bonds issued by state and local governments
- exposed to default risk
- ADVANTAGE: interest earned is exempt from federal taxes and from state taxes if the
holder is a resident of the issuing state
- market interest rate is considerably lower than on a corporate bond of equivalent risk
Foreign Bonds - Answers -Bonds issued by foreign governments or by foreign
corporations
Par Value - Answers -stated face value of the bond
- represents the amount of money the firm borrows and promises to repay on the
maturity date
Coupon Payment - Answers -specified number of dollars of interest paid each year
Coupon Interest Rate - Answers -the stated annual interest rate on a bond
- annual coupon rate / par value
Debt - Answers -a promise by the borrower to repay the amount borrowed, plus interest
Bill (Paper) - Answers -a short-term debt obligation with an initial maturity less than one
year
- EX: T-note or Note of Paper
Note - Answers -an obligation with a maturity between 1 and 7 hears
Issuer - Answers -Borrower
, Bondholder - Answers -Lender
Traditional Bond - Answers -has both an interest coupon and a face value, annual or
semi-annual coupon payments
Zero-Coupon Bond - Answers -- no coupon payments
- pays face value at maturity
- sell at deep discount
Amortized Loan - Answers -A loan in which the principal as well as the interest is
payable in monthly or other periodic installments over the term of the loan.
- pay interest first
Term to Maturity - Answers -time until face value is paid
- generally in years
Indenture - Answers -formal name for bond agreement, name given to bond (formal)
contract
Terms - Answers -states when coupons are paid and whether bond in registered form or
bearer form
registered form - Answers -the form of bond issue in which the registrar of the company
records ownership of each bond; payment is made directly to the owner of record
Bearer Form - Answers -the form of bond issue in which the bond is issued without
record of the owner's name; payment is made to whomever holds the bond
- clip coupons and mail in for payment
- popular with underground mobs/organized crime
Securitized - Answers -securities packaged and sold as assets backing a publicly traded
or privately held debt instrument
- uses collateral
- used to add a backing to give people $$$
- EX: mortgage backed security
Unsecured - Answers -loan guaranteed only by a promise to repay it
- no specific security stated
- AKA: Debenture
Seniority - Answers -hierarchy of claims
- lower on the totem pole: HIGHER THE RATE YOU WOULD CHARGE
- common shareholders are dead LAST because you get dividends and willingly
invested in the company
Call Provision - Answers -allows issuer to repurchase 'Call' all or part of the bond
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