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measures the investor's total overall return it also has the most widely quoted type of yield for bonds.
Referred to as a bond's yield or basis. |
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the stated rate ofinterest that the issuer promises to pay the bondholder.
This Rate is Fixed at issuance and will not be changed.
A bond with a 10% coupon, the bondholder willr eceive$100 per yr for each $1k of par value. |
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Measures the interest that the investor receives from a bondcompared to its current makret price
=Annual interest payment/Current market price |
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| to replace a debt issue with another debt issue. A corporation can refund a debt issue to reduce its interest expense and change the maturity schedule for its debt |
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| The current yield is found by dividing the annual interest payment by the current market price. The bonds pay interest of $50 per year. The bonds are currently trading at a 20% discount to par; therefore, the bonds are priced at 80% of par, or $800 ($1,000 x .8). The current yield is 6.25% ($50 / $800). The fact that the bond will mature in 12 years is not necessary to find the current yield, although it is needed to find the yield to maturity. |
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Definition
| Hammy Industries has previously issued 5.0% bonds ($1,000 par value). The bonds mature in 12 years and are selling at a 20% discount to par. What is the current yield on the Hammy bonds? |
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| takes into accoutn a bond's cash flow through its first call date, calculated same was as Yield to Maturity, except that it reflects the bond's interet payments until it is called, rather than when it matures. |
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Issuers extablish this fund into which monies are depoited in order to redeem their bonds, most of these are used to redeem a portion of the bonds beginning a few years prior to maturity.
Ensures taht the debt will be retired in an orderly fashion and enhances the safety and liquidity of the issue. |
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| opposite of a call provision- this feature gives the bondholder the right to redeem the bond on a specified date or dates prior to maturity . The bondholder usually receives the bond's par value, but the bond may also be redeemable at a discount or premium. |
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a bond selling at "" means that it is equal to both the current yield, and YTM.
(NY=CY=YTM) |
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For a bond selling at "", the nominal yield (coupon) is less thn the current yield, which is less than the yield to maturity.
(NY<CY<YTM) |
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The nominal yield is more than the current yield which is more than the yield to maturity.
(ny>CY>YTM) |
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Term
1.)Higher coupons
2.)Long term bonds |
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Definition
1.)Bones with longer maturities also have ? coupons?
2.)The prices of ?bonds tend to fluctuate moore than those with shorter maturities? |
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| Rates of these bonds are more sensitive to changes in interest rates than higher coupon securities with similar maturities. The price of a 10 yr bond paying *% willl drop more than the price of a simlar 10yr bond paying 10%, if overall interest rates rise. |
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| situation occurs when there is a price difference in comparable securities. If stock is selling above parity, the value of the stock received from converting the bond would be more than the value of the bond. An investor could sell short the stock and buy the bond and then convert the bond and use the stock to cover the short position |
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| Protective convenants and what happens if an issuer defaluts. Convenants are protective agreemnts that th borrower pldeges for portection of the lender. |
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| pertains to issuers that make a tender offer for their own securities. A modified Dutch Auction allows, but does not require, shareholders to select the price within a price range at which they are willing to sell their shares. A company will normally select the lowest price that will allow the purchase of the number of shares specified in the tender offer. |
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| An individual selling securities under which rule must notify the SEC by filing a notice of sale. This must be done at the time a sell order is placed with a broker, or when the order is executed directly with a market maker |
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| Risk of homeowners pay their mortgages early, this rate measures how quickly mortgages are being paid off int he investment pool. |
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| Collateralized Mortgage Obligations (CMO) |
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Definition
| A martgagte back security taht takes the princiipala nd interst payments from underlying nmortgages and creates various clases of bonds called tranches, each tranch has a different rate of interest, popular bc investors can choose the yield, maturity structure and risk exposure that best meets their needs. |
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| This is the opposite of a prepayment risk, where the interest rates are rising and the holder of the mbs receives a smaller portion of her principal back. |
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| Payment In Kind (PIK Bond) |
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Definition
A payment in kind bond may pay interest in both a cash coupon and additional principal. It is usually a typeof mezzanine financin which allows the issuer to conserve cash and pay bondholders additional principal instead fo higher cash coupon rate
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Term
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Definition
dollar denominated deposit outside of the US, pay principal and interst in US dollars and are issued outside US primarily Europe. Their issuers include corps, foreign govs and international agencies such as the world bank.
Because they are not registered w SEC they may not be sold in the USA for 40-90 days. |
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Term
| Cash Management Bills (CMB) |
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Definition
| CMBs are unscheduled short term debt offerings used to even out treasury cash flows the duration of a CMB can be as short as one day, they are issued at discoutn and mature at the face amount |
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Term
Treasury STRIPS
Seperate Trading of Registered interest and principal of securities. |
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Definition
| dealers may purchase T-notes and to bonds and separately resell the coupon and principal payment as zero cupons after requesting this treatment through ta Fed reserve bank. STRIPS are sold for a discount. The difference betwn investors purchase price ande bond;s face value is interest. STRIPS are backed by the full faith and credit of the US treasury and are quoted on yield basis rather than as a percentage of their par value. |
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| Federal Hom Loan Banks (FHLBs) |
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Definition
The 12 Fed home loan banks help provide liquidity to for savigns and loan isntitutions, which nmay need extra funds to meet seasonal demands for money. the two types of securities they issue are discoutn and notes, which have maturities of less than one year and consolidated bonds, which have maturite3s of one year or more.
they are not backed by US gov, the treasury is allowed to buy up to 4 bn |
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Definition
| a technique that involves profiting from price differentials in the same or similar security. there are times when the market price of the convertible bond does not reflect the value of the common stock that would be received if the bond were converted into the stock. |
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Federal Home Loan Mortgage (FHLMC)
Freddy Mac |
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| The purpose this Government Sponsored Enterprise is to provide liquidity to federally insured savings institutionsneeding extra funds to finance new housing, especially when credit is tight. does this by purchasing residential mortgages from the savings institutions. |
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Federal national Mortgage Association (FNMA)
Fannie Mae |
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Definition
Raises money to buty insured federal housing administration FHA, Veterans Admin (VA) and conventional residential mortgages from lenders such as banks and saving and loan associations. Issues are backed by its authority to borrow fromt eh treasury. they are not backe3d by US gov.
They issue notes, bonds and stock that trade on an exchange. all securities are subject to fed state and local taxes |
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| Governement national Mortgage and association GNMA Ginnie Mae |
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Definition
GNMA issues mortgage back securities participation certificates and its most popular security modified pass through certificates. a modified pass through certificate is back by fed housing admin or vet admin residential mortgages. Guarantees monthly payments to owner of certificates even if payments have not been collected from the homeowner. have maturity of 25 to 30 yrs.
Dude to prepayments foreclosures and refinancing the avg life of the pool tends to be from 12 to 14 yrs. |
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Term
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Definition
short term securites taht matur e in one year or less, currently an invest can purchase t bills with maturities of one month , three months and six months and one year, these are sold with a minimum denomination of 100usd and in multiples of 100
Tbills are quoted on discounted yield basis not as a percentage of their par value. |
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Term
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Definition
| A contract between two parties, one is the buyer owner or holder of the option. the buyers pays for the right to exercise the terms of the contract. The other party is the person who grants the owner the rights to be exercisse, knows as the writer or seller. The write recdeives money and is obligated to fulfill the terms of the contract upon exercise. |
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Term
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Definition
In a blank option contract, the owner has the right to buy the underlying security to callt he securty away from the writer at a fixed price the writeer has the crresponding obligation to sell the ssecurity at the fixed price if the owner exercises the blank option
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Term
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Definition
| the owner has the right to sell the underlying security to the writer at a fixed price. the writer assumes an obligation to buy the security at the fixed price |
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Term
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Definition
| also called the strike price, is the price at which the buyer may buy stock from the writer or sell tock to the writer. In this example the buyer is guaranteed a purchase price of 30usd a share for xyz stock, regardless of how high the price of the xyz might rise. |
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Term
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Definition
| all options have until a certain period to exercise the option. if not exercised during this period it will cease to exist |
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| American v. European Style |
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Definition
| Under American exercise an option contract may be exercised up to the day before expiration, under european exercise the option may be exercised only during a specifided period though it is usually on the day before expiration. |
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Term
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Definition
| A call option is in the money if the mrkt price of the stock is higher than the exercise price of the option. If the market price of the stock is th saem as the exercise price of the call option, the option would be at or on the money. if the market price is lower than the exercise price of the call option the option would be out of the money. |
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Term
| ADR Advanced Depository Receipts |
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Definition
| are receipts issued for foreign stock. The actual shares of common stock are deposited in foreign branches of American banks, and the receipts are traded in the U.S. The issuance of the receipts aids in the transfer of ownership and facilitates the trading of foreign securities in U.S. market |
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Term
A corporation's long-term debt would most likely be called when interest rates:
- Rise above the bond's nominal yield
- Rise above the bond's yield to maturity
- Fall below the bond's nominal yield
- Fall below the bond's yield to maturity
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Definition
| The indenture between the issuer and bondholder for long-term debt often contains a call provision that allows the issuer, at its option, to redeem the bonds before maturity. Call provisions usually benefit the issuer, which has the option of calling in the bonds when interest rates decline. The issuer may then refinance the debt at a lower rate of interest. For instance, if an issuer's outstanding bond is paying a coupon rate (nominal yield) of 9% at a time when similar bonds are paying only 5%, it can reduce its interest costs by calling in the 9% bonds and issuing new ones at 5%. As rates decline, the bond's yield to maturity, or yield to call, also would declin |
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Term
When comparing two options contracts with the same strike price and different expiration dates, the contract with the later expiration should have:
- A greater total premium
- A lesser total premium
- The same premium
- More intrinsic value
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| When comparing two contracts with the same strike price, the seller will demand a greater premium for the contract with the longer life. |
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An Italian sportswear retailer is conducting an initial public offering in Europe, Asia and Latin America. The offering will be denominated in U.S. dollars. This is an example of a(n):
- American Depositary Receipt
- Global Depositary Receipt
- Eurodollar bond
- Eurobond
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| A Global Depositary Receipt (GDR) allows an issuer to raise capital internationally. It is an offering of a security that is sold in two or more markets. The GDR may be denominated in U.S. dollars, or any other currency. If this security was being offered in the United States, it would be referred to as an American Depositary Receipt |
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| considered the most important measure of inflation. The CPI measure the prices of a fixed basket of goods bought by a typical consumer. If prices, as measured by the CPI are rising then the economy is experiencing inflation. |
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Definition
Signals inflation
signals job losses and easing of pricing pressures
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| Leading Economic indicators |
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Definition
The average workweek for production workers in manufacturing.
avg weekly initial claims for state unemployment insurance
new orders for consumer goods and materials
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| Coincident Economic indicators |
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Definition
Employees on nonagricultural payrolls
personal income less tranfer payments
index of industrial Manufacturing and trade sales
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