Debt Securities
Prices & Yields
Corporate Bonds
US Government & Agency Securities
Municipal Bonds
100
The definition of Par Value, Premium & Discounts.
What is Par value- The Face or principal value of a bond typically $1000, Premium – When a Bonds current value exceeds par or is traded, or redeemed above Par, and Discount – When a Bonds current value is below par, or is traded or redeemed below par
100
With bonds, as this rises, this falls.
What are interest rates and Price/Value?
100
An Unsecured bond that is sweetened with the incentive that debenture is convertible to common shares
What is Convertible bond?
100
Two types of mortgage securities. One has fixed-income securities that represent an undivided interest in a pool of federally insured mortgages. The other is made up of bonds that are backed by pools of mortgages, mortgage or issues by GNMA, FNMA, FHLMC as well as private companies (as well as the above).
What are Pass-Through Certificates & Collateralized Mortgage Obligations (CMOs)?
100
This type of Bond may be the target for investors who are in a higher tax bracket and are looking for a tax break?
What are Municipal Bonds?
200
These pay interest at regular intervals & are for investors who desire current income. On the other hand, these have Interest paid as lump sum when the bond matures, and are for investors who need a lump sum at a future date.
What are Regular and Zero-Coupon Bonds?
200
2 of the typical benefits of investing in bonds.
What is a predictable source of income & lower volatility (less chance of looking large portions of capital)?
200
This represents the total of all the various securities that were issued to finance operations (common & Preferred stocks, long term bonds etc.).
What is Capitalization?
200
The definition of Asset-Backed Securities & Money-Market Securities
What is Asset Backed Securities - same thing as a mortgage-backed security, except that the securities backing it are assets such as loans, leases, credit card debt, a company's receivables, royalties and so on and not mortgage-based securities, Money-Market Securities – Short term debt securities that are considered a separate class of assets that are referred to as cash equivalents. (300)?
200
Generally exempt from federal income taxes, and sometimes state and local income taxes. Those issued in US territories are exempt from Federal, State & Local taxes.
What is the tax advantage of Municipal Bonds?
300
4 alternative ways bonds can be redeemed before maturity.
What are Call Provisions, Refunding, Call Protection & Premiums, and Sinking Call Fund.
300
A high quality bond is normally referred to as this grade & a high yield (junk) bond is referred to as this grade.
What are Investment Grade and Speculative Grade?
300
Two types of Corporate Bonds.
What are Secured and unsecured bonds? Secured Bonds – Backed by assets that are owned by the corporation Unsecured Bonds – only secured by corporations promise to pay (Full faith and credit)
300
Three agencies of which may issue Mortgage Backed Securities.
Who are Government National Mortgage Association (GNMA) Ginne Mae, Federal National Mortgage Association (FNMA) Fannie Mae, Federal Home Loan Mortgage Corporation (FHLMC) Freddie Mac?
300
Two types of Municipal Bonds.
What are General Obligation (GO) Bonds and Revenue Bonds? General Obligation Bonds (GO Bonds) - secured by the taxing power of the issuer also referred to as Full-Faith-and-credit Bond. Revenue Bonds – are backed by user fees/revenue from use of project (toll roads, airports etc)
400
The two types of Bond Repayment Structures?
What are Serial (mature sequentially over several years) and term (mature on the same date) Issues?
400
The definition of Nominal Yield, Current Yield, & Yield-to-Maturity (YTM)
What is Nominal Yield – Nominal yield is always the same as the coupon rate, Current Yield - Measures what the bond investor will receive for what they paid (paid par, premium or discount), Yield-to-Maturity – Takes into account everything the investor receives from a bond from the time purchased to maturity. Including payments, plus the difference between what was paid for the bond and what is received when the bond matures?
400
These types of bonds do not produce interest income but each year the cost basis is adjusted up towards par this growth is considered the interest and is taxable each year also called ‘Accretion’ (as opposed to Corporate Bonds).
What are Zero-Coupon Bonds? Corporate Bonds have taxes for the interest income and is taxed at ordinary income for the investor subject to federal, state and local taxes. Corporate Zero-Coupon Bonds do not produce interest income but each year the cost basis is adjusted up towards par this growth is considered the interest and is taxable each year also called ‘Accretion’
400
4 examples of Money-Market Securities?
What are Treasury Bills- Very liquid, safe and mature in one year or less Commercial Paper – Short term, matures in 270 days or less, very safe issued by high credit corporations Certificates of Deposits (CDs) issued by banks, and savings & Loans in order to raise capital lasts 7 days to 5 years. Bankers Acceptance (BAs) Used by importers and exporters to facilitate foreign trade.
400
Tax-Free Municipal Yield/ (100% - Tax Bracket %) and Taxable Yield x (100% - Tax Bracket %).
What are the Tax-Equivalent Yield & Net Yield calculations?
500
The 3 different forms that bonds are issued as.
What is Bearer form, Registered form, & Book Entry form? Bearer Form – Person who bears the bond is owner, coupon is attached, (No long used in US) Registered Form – Bond has the owners name registered on both the Bond itself and in the issuer’s records Book Entry Form - No physical certificate owners name and address kept in books (records) of issuer
500
5 risks when investing in bond.
What are Interest-Rate risk, Inflation (purchasing power) risk, Reinvestment risk, Call risk, Credit risk? Interest-Rate Risk – When interest rates fluctuates bonds may not look as attractive to other investors. Inflation (Purchasing-power) Risk – Inflation diminishes the real value of a dollar by decreasing purchasing power. Reinvestment Risk – Investor will not be able to reinvest the principal amount at the same interest rate after the bond is called or matures. Call Risk – Risk having bond called (redeemed) by issuer before it can mature Credit Risk – Issuer may default on debt and become unable to pay interest or principal invest back.
500
All three are types of secured bonds.
What are Mortgage Bonds, Equipment Trust Certificates, and Collateral Trust Bonds? Convertible Bonds are unsecured.
500
5 types of treasury securities.
What are T-Bills, T-Notes, T-Bonds, T-STRIPS, & TIPS. Note: *T-Bills short term securities issued in 1 month, 3 months, 6 months, and one year. Sold at a minimum of $100 and every $100 after. Always sold at discount from face value * T-Notes pays face value of securities and a fixed rate of interest every 6 months & matures in 2-10 years quoted in 32nds of a point * T-Bonds pays face value of securities and a fixed rate of interest every 6 months & matures up to 30 years quoted in 32nds of a point * T-STRIPS a form of Zero-Coupon bonds issues by the Treasury * Treasury inflation protected securities T-TIPS have fixed rates of interest but principal may still fluctuate due to inflation and is based on Consumer price index (CPI) Municipal Bonds
500
BANs, TANs, & RANs.
What is Bond Anticipation Notes, Tax Anticipation Notes, and Revenue Anticipation Notes? Bond Anticipation notes (BANs) – issues to obtain temporary financing when a municipality expects to issue long-term bonds Tax Anticipation notes (TANs) used when a municipality expects to repay the notes through the collection of taxes Revenue Anticipation notes (RANs) are used when the issuer expects funds from a source other than its own taxes such as revenue from the state or federal government
M
e
n
u