FIN 427 Sinking Fund Provision

Chapter 7
a provision in a bond contract that requires the issuer
Bond to retire a portion of the bond issue each year
a long-term debt instrument
Convertible Bond
Treasury Bonds a bond that is exchangeable at the option of the
bonds issued by the federal government, sometimes holder for the issuing firms common stock
referred to as government bonds
Warrant
Corporate Bonds a long-term option to buy a stated number of shares
bonds issued by corporations of common stock at a specified price

Municipal Bonds Putable Bond

bonds issued by state and local governments a bond with a provision that allows its investors to sell
it back to the company prior to maturity at a
Foreign Bonds prearranged price
bonds issued by foreign governments or by foreign
corporations Income Bond
a bond that pays interest only if it is earned
Par Value
the face value of the bond Indexed (Purchasing Power) Bond
a bond that has interest payments based on an
Coupon Payment inflation index so as to protect the holder from
the specified number of dollars of interest paid each inflation
year
Discount Bonds
Coupon Interest Rate a bond that sells below its par value; occurs
the stated annual interest rate on a bond whenever the going rate of interest is above the
coupon rate
Fixed-Rate Bond
a bond whose interest rate is fixed for its entire life Premium Bond
a bond that sells above its par value; occurs
Floating-Rate Bond whenever the going rate of interest is below the
a bond whose interest rate fluctuated with shifts in the coupon rate
general level of interest rates
Yield to Maturity (YTM)
Zero Coupon Bond the rate of return earned bond if it is held to maturity
a bond that pays no annual interest but is sold at a
discount below par, thus compensating investors in Yield to Call (YTC)
the form of capital appreciation the rate of return earned on a bond when it is called
before its maturity date
Original Issue Discount (OID) Bond
any bond originally offered at a price below its par Price (Interest Rate) Risk
value the risk of a decline in a bonds price due to an
increase in interest rates
Maturity Date
a specified date on which the par value of a bond Reinvestment Risk
must be repaid the risk that a decline in interest rates will lead to a
decline in income from a bond portfolio
Original Maturity
the number of years to maturity at the time a bond is Investment Horizon
issued the period of time an investor plans to hold a
particular investment
Call Provision
a provision in a bond contract that gives the issuer the Duration
right to redeem the bonds under specified terms prior the weighted average of the time it takes to receive
to the normal maturity date each of the bonds cash flows
FIN 427
Chapter 7

Mortgage Bond
a bond backed by fixed assets. First mortgage bonds
are senior in priority to claims of second mortgage
bonds.

Indenture
a formal agreement between the issuer and the
bondholders

Debenture
a long-term bond that is not secured by a mortgage
on specific property

Subordinated Debenture
a bond having a claim on assets only after the senior
debt has been paid in full in the event of liquidation

Investment-Grade Bond
a bond rated triple-B or higher; many banks and other
institutional investors are permitted by law to hold
only investment-grade bonds

Junk Bond
a high-risk, high-yield bond