| Term | Definition |
|---|
| Bond | is a long-term contract under which a borrower agrees to make payments of interest and principal on specific dates to the holders of the bond. |
| Treasury Bond | generally called treasuries and sometimes referred to as government bonds are issued by the federal government. |
| Corporate bond | are issued by business firms. Unlike treasuries they are exposed to default risk if the issuing company gets in trouble it may be unable to make the promised interest and principal payments and bondholders my suffer losses. |
| Municipal bond | or munis is the term given to bonds issued by state and local governments. Like corporate they are exposed to some default risk but they may have one major advantage over all bonds. |
| Foreign Bond | are issued by a foreign government or a foreign corporation. They are exposed to default risk as are some foreign government bonds. |
| Coupon payment | the specified number of dollars of interest paid each year |
| Coupon interest rate | the stated annual interest rate on a bond. |
| Fixed rate bond | a bond whose interest rate is fixed for its entire life. |
| Floating Rate Bond | a bond whose interest rate fluctuates with shifts in the general level of interest rates. |
| Zero coupon bond | a bond that pays no annual interest but is sold at a discount below par, thus compensating investors in the form of capital appreciation. |
| Call provision | a provision in a bond contract that gives the issuer the right to redeem the bonds under specified terms prior to the normal maturity date. |
| Sinking fund provision | a provision in a bond contract that requires the issuer to retire a portion of the bond issue each year. |
| Convertible bond | a bond that is exchangeable at the option of the holder for the issuing firm's common stock. |
| Income bond | a bond that pays interest only if it is earned. |
| Discount bond | a bond that sells below its par value occurs whenever the going rate of interest is above the coupon rate. |
| Par value | is the stated face value of the bond |
| Premium bond | a bond that sells above its par value occurs whenever the going rate of interest is below the coupon rate. |
| Yield to maturity | the rate of return earned on a bond if it is held to maturity. |
| Yield to call | the rate of return earned on a bond when it is called before its maturity date. |
| Total return | sum of the expected current yield and the expected capital gains yield. |
| Interest rate risk | the risk of a decline in a bond's price due to an increase in interest dates. |
| Reinvestment rate risk | the risk that a decline in interest rates will lead to a decline in income from a don portfolio. |
| Default risk | likelihood of the bond defaulting treasury is 0 substantial for lower grade corporate and municipal bonds higher the risk higher the return rate. |
| 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 longterm 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 off in the event of liquidation. |
| Investment grade bond | bonds rated trible b or higher many banks and other institutions investors are permitted by law to hold only investment grade bonds. |
| Junk bond | a high risk high yield bond. |
| Maturity date | a specified date on which the par value of a bond must be repaid |
| Original Maturity | the number of years to maturity at the time a bond is issued. |
| Warrant | a long- term option to buy a stated number of shares of common stock at a specified price. |
| Original Issue Discount Bond | any bond originally offered at a price below its par value. |
| Putable Bond | a bond with a provision that allows its investors to sell it back to the company prior to maturity at a prearranged price. |
| Indexed bond | a bond that has interest payments based on an inflation index so as to protect the holder from inflation. |
| Investment Horizon | the period of time an investor plans to hold a particular investment. |
| Market Equilibrium | Intrinsic Value = Stock Price |
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