Term
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Definition
| At Maturity, the issuer pays this amount to the bondholder |
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Term
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Definition
No Semi-Annual Interest payments made
Purchased at a Discount
Redeemed at Maturity |
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Term
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Definition
Bonds are all issued on the same date
Bonds all mature on the same date
Corporate Bond
Government Bond
Quoted on percentage of Par (or dollar price)
AKA Dollar Bonds |
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Term
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Definition
Bonds are all issued on the same date
Bonds mature on different dates
Maturities & Stated interest rates vary
Muni Bonds
Corporate Equipment Trust Certificates |
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Term
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Definition
Seen on Serial Bonds
The Longer the Maturity, higher the yield |
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Term
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Definition
Bonds are issued on different dates
Bonds mature on the same date
Rare
Used to finance long term construction
Phasing in the bonds reduces interest cost to the issuer |
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Term
| Percentage of Par is Also known as |
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Definition
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Term
| Corporate bonds are quoted... |
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Definition
As a percentage of Par value
1/8
101 3/8 |
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Term
| What is the dollar price of a bond quoted at 101 3/8? |
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Definition
101 3/8 = 101.375%
101.375% * $1000 = $1013.75 |
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Term
| US Government bonds are quoted... |
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Definition
As a percentage of Par Value
1/32
99.24 |
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Term
| What is the dollar price of a bond quoted at 99.24? |
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Definition
99.24 = 99 24/32 = 99.75%
99.75% * 1000 = $997.50 |
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Term
| Are corporates or Government securities more actively traded? |
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Definition
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Term
| What is another term for quoting on a "Yield Basis" |
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Definition
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Term
| How much is 100 basis points worth? |
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Definition
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Term
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Definition
Bonds issued at current interest rates trade at par ($1000 face value)
As interest rates rise or fall, this rises or drops the price |
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Term
| What does it mean to have a 5.5% coupon bond quoted on a 6% basis? |
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Definition
This means interest rates have risen, dropping the price of the bond from its $1000 par to $965.60 (discount bond)
(this figure comes from a bond calculator, and you won't need to do this calculation) |
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Term
| What does it mean to have a 5.5% bond quoted on a 5% basis? |
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Definition
This means interest rates have fallen, rising the price of the bond from its $1000 par to $1035.90
(this figure comes from a bond calculator, and you won't need to do this calculation) |
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Term
| What bonds are quoted on a Percentage of Par Basis? |
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Definition
Term Bonds.
This is because as interest rates rise or fall, the percentage of par is an indication of how the price of the bond has been effected. |
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Term
| What is another name for term bonds? |
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Definition
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Term
| How are Dollar bonds quoted? |
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Definition
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Term
| What bonds are quoted on a yield basis? |
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Definition
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Term
| How do you find the dollar price of a serial bond? |
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Definition
Coupon %
_________
% Basis
A municipal bond dealer quotes a 30 year 4% General Obligation bond on a 5.00 basis
4% Coupon
_____________ = .80 or 80% of $1000 par
5% Basis |
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Term
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Definition
| A bond selling at less than the $1000 face value of the bond because its stated interest rate is higher than the current market rates. |
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Term
|
Definition
| A bond selling at more than the $1000 face value of the bond because its stated interest rate is lower than the current market rates |
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Term
| What is the relationship between Bond Prices and Interest rates |
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Definition
As interest rates rise, bond prices fall.
As interest rates fall, bond prices rise
*bond stated coupon rates are not adjusted. Only the price its trading at in the market** |
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Term
| When interest rates move, what type of maturity moves the fastest. Why? |
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Definition
| Longer maturities, because there is a longer time horizon in which prices can move. |
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Term
| Where is most of a bond's value? |
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Definition
| The final principal repayment. |
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Term
| How does a bond's length of maturity effect its "present value" |
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Definition
| It decreases as maturity increases. This is because the bulk of the value of the bond lies in the final principal repayment. |
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Term
| What type of bond has the most "present value" in the final principal repayment? |
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Definition
| The lower the coupon rate, the more will be received in the end at maturity. |
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Term
| What types of bonds have more of the bond's "Present Value" in the interest payments? |
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Definition
| The higher the coupon rate, the more of the bond's value you receive sooner, changing where the value lies. |
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Term
| What type of bond's price moves the fastest in response to interest rate movement? |
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Definition
| Long Term Zero Coupon bonds have the most violent price swings in times of varying interest rates |
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Term
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Definition
| The stated rate of interest on the bond |
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Term
|
Definition
Annual interest in Dollars
__________________________
Bond's Market Price |
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Term
|
Definition
| Takes into account both the market price of the bond as well as any capital gains or losses on the bond if held to maturity |
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Term
|
Definition
Annual Income +/- Discount/Premium
__________________________________
Average Price = Purchase Price + Redemp
_______________________
2 |
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Term
| What yield calculation is highest for a Discount Bond? |
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Definition
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Term
| What yield calculation is lowest for a discount bond? |
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Definition
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Term
|
Definition
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Term
| What is the cost to the issuer in calling a bond? |
|
Definition
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Term
|
Definition
| The time up until the bond can be called |
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Term
| What does call price do to market price? |
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Definition
| Ceiling. an investor will not pay more for a bond than the price it is callable at. |
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Term
| How are zero-coupon bonds called? |
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Definition
| At their current accreted value plus a call premium. |
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Term
|
Definition
| As interest rates rise, bond prices fall. |
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Term
|
Definition
| a rise in interest rates will cause the bond to fall sharply in value |
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Term
| What type of bond is highly susceptible to interest rate risk? |
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Definition
| any bond with a low interest rate |
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Term
| What does put price do to market price? |
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Definition
| Floor. The market price will never drop below par once its exercisable. Otherwise, traders would buy and put immediately, pushing the price up to par anyway. |
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Term
|
Definition
Annual income +/- Discount or Premium
___________________________________
Purchase Price + Call or Put Price
_________________________________
2 |
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Term
| What order are the Teeter Totter Yields in? |
|
Definition
MKT PRICE - NOMINAL - YTM - YTC
^
^ |
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Term
|
Definition
Investment Grade
AAA
AA
A
BBB
_____________
BB
B
CCC
CC
C |
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Term
|
Definition
| The risk that the issuer cannot make interest and principal payments. |
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Term
| Who are the two main agencies that provide bond ratings? |
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Definition
M oody's
S tandard & P oors |
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Term
| Moody's Bond Ratings for Long Term Bonds |
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Definition
Investment Grade
Aaa
Aa
A
Baa
________________
Ba
B
Caa
Ca
C |
|
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Term
| what grade bonds will institutions invest in? |
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Definition
| Anything in Investment grade bonds (Baa or BBB and above) |
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Term
| Moody's Bond Ratings for Short Term Bonds (Commercial) |
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Definition
P1
P2
P3
NP
(Prime 1
Prime 2
Prime 3
Not Prime) |
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