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PFM Ch. 13
Terms in this set (36)
loans (debt) that must be repaid at maturity, with semiannual interest payments
shares of ownership (equity) in the corporation
those who invest in bonds and receive interest twice a year
face value or par value
the amount the bondholder will be repaid at maturity; the dollar amount printed on the certificate
sold on the open market through brokers. prices in The Wall Street Journal and the financial pages. interest is taxable and simple.
bonds are known as this; they pay a specified amount of interest on a regular schedule and interest does not go up and down
contract rate or interest rate
the percentage of face value that the bondholder will receive as interest each year
most bonds; a bond that is recorded in the owner's name by the issuing company. interest checks are mailed semiannually to the bondholder.
coupon bond or bearer bond
a bond not registered by the issuing company. collect by cashing a coupon.
a bond that the issuer has the right to pay off (call back) before its maturity date
a corporate bond that is based on the general creditworthiness of the company. the issuer does not pledge any specific assets to assure repayment of the loan. unsecured.
secured bond or mortgage bond
a corporate bond backed by specific assets which serve as security to assure repayment of the debt. if the corporation fails to repay the loan as agreed, the bondholder may claim the property used as security for the debt.
a corporate bond that can be converted to shares of common stock
a selling price for more than a bond's face value
an amount lower than face value that is attractive to buyers
a corporate bond that is sold at a deep discount, makes no interest payments, and is redeemable for its face value at maturity. could be issued by the US government or municipalities.
municipal bond or munis
a bond issued by state and local governments; lower interest rates than those of corporate bonds; interest is exempt from federal taxes
a municipal bond issued to raise money for a public-workers project
general obligation bond or GO
a municipal bond backed by the power of the issuing state or local government to levy taxes to pay back the debt
Series EE bonds
a saving bond sold at one half of its face value
savings bond sold at face value that have fixed plus variable rates of return that increase as general interest rates rise
treasury notes, bills, and bonds; risk-free; taxable at the federal level but exempt from state and local taxes; not callable
a bond that loans money to one of the federal agencies that issue bonds, e.g. Federal Home Loan mortgage Corporation or Freddie Mac; risk-free; exempt from state and local taxes but not federal tax
brokers who assists you in buying and selling all kinds of bonds and charges you a commission or a flat fee for the service
broker who charges a smaller fee or commission, but will give you no advice in your decisions to buy or sell
Federal Reserve System
consists of 12 Federal Reserve Banks and 25 regional branches; you can buy and sell US savings bonds and Treasury securities through this system
the system the Federal Reserve uses to record and store data about Treasury securities and their owners
payroll deduction plan
your employer will withhold money from your paycheck, and when your withholdings are sufficient, they will purchase a bond and it will be sent to you
occurs when a bond is paid off at maturity and the issuer of the bond pays back the original amount that was borrowed
any investment or action that helps offset against loss from another investment or action; a tactic used to reduce overall risk
tells the investor the risk category that has been assigned to a bond (from AAA to D)
means that the bond issuer cannot meet the interest and/or principal payments. this would earn a D rating.
considered the high-est quality, lower-risk bonds with safe and dependable issuers (rating of Baa/BBB or higher)
has a low rating, or no rating at all (Ba/BB or lower); highly speculative; higher yields; higher interest rates
a group of bonds that have been bundled together and sold in shares (like stock) to investors
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