Finance: Applications and Theory, 3e Cornett, Adair, and

Nofsinger, Chapter 7
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1. agency Bonds issued by U.S. government agencies. 21. investment High credit quality corporate bonds.
bonds grade
2. asset- Debt securities whose payments originate from 22. junk bonds Low credit quality corporate bonds, also
backed other loans, such as credit card debt, auto called speculative bonds or high-yield bonds.
securities loans, and home equity loans.
23. maturity The calendar date on which the bond
3. Bond Publicly traded form of debt. date principal comes due.
4. bond price Current price that the bond sells for in the 24. mortgage- Debt securities whose interest and par value
bond market. backed payments originate from real estate mortgage
securities1 payments.
5. Bond price PV of annuity + PV
= 25. mortgage Bonds secured with real estate as collateral.
bonds
6. bond A grade of credit quality as reported by credit
rating rating agencies. 26. par value Amount of debt borrowed to be repaid; face
value.
7. call An issuer redeeming the bond before the
scheduled maturity date. 27. premium A bond selling for greater than its par value.
bond
8. call The amount in addition to the par value paid by
premium the issuer when calling a bond. 28. Present Present value of interest payments + Present
value of value of par value or PMT x [(1-(1/((1+i)^N))/i] +
9. convertible A debt security that can be converted to shares
bond = (Par value of bond/((1+i)^N))
bond of stock or another type of security.
29. Price of a PV of interest payments to call date + PV of
10. coupon The annual amount of interest paid expressed
callable call price or Present value of bond = Present
rate as a percentage of the bond's par value.
bond = value of interest payments + Present value of
11. credit The chance that the issuer will not make timely par value or PMT x [(1-(1/((1+i)^N))/i] + (Call
quality risk interest payments or even default. price/((1+i)^N))
12. current Return from interest payments; computed as 30. principal Face amount, or par value, of debt.
yield the annual interest payment divided by the
31. reinvestment The chance that future interest payments will
current bond price.
rate risk have to be reinvested at a lower interest rate.
13. debentures Unsecured bonds.
32. senior Older bonds that carry a higher claim to the
14. discount A bond selling for lower than its par value. bonds issuer's assets.
bond
33. taxable Modification of a municipal bond's yield to
15. equipment Bonds secured with factory and equipment as equivalent maturity used to compare muni bond yields to
trust collateral. yield taxable bond yields.
certificates
34. time to The length of time (in years) until the bond
16. Equivalent Muni yield/1 - tax rate maturity matures and the issuer repays the par value.
taxable
35. Treasury TIPS are U.S. government bonds where the
yield =
Inflation- par value changes with inflation.
17. fixed- Any securities that make fixed payments. Protected
income Securities
securities
36. unsecured Corporate debt not secured by collateral
18. high-yield Bonds with low credit quality that offer a high corporate such as land, buildings, or equipment.
bonds yield to maturity, also called junk bonds. bonds
19. indenture Legal contract describing the bond 37. yield to call The total return that the bond offers if
agreement characteristics and the bondholder and issuer purchased at the current price and held until
rights. the bond is called.
20. interest The chance of a capital loss due to interest rate 38. yield to The total return the bond offers if purchased
rate risk fluctuations. maturity at the current price and held to maturity.
39. zero coupon A bond that does not make interest payments but generally sells at a deep discount and then pays the par value at
bond the maturity date.