To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential. For example: • A bond’s refers to the interest payment or payments paid by a bond. • A bond issuer is said to be in if it does not pay the interest or the principal in accordance with the terms of the indenture agreement or if it violates one or more of the issue’s restrictive covenants. • The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called . • A bond’s gives the issuer the right to call, or redeem, a bond at specific times and under specific conditions. Suppose you read an article about the Golden Gate Bridge and Highway District bonds. It includes the following information: Bridge Bonds Series A Dated 7-15-2005 4.375% Due 7-15-2055 @100.00 What is the issuing date of this bond? 7-15-2005 7-15-2055 If the coupon interest rate remains constant from the time of issue until the bond matures, then the bond is called a bond. The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called the . When are issuers more likely to call an outstanding bond issue? When interest rates are higher than they were when the bonds were issued When interest rates are lower than they were when the bonds were issued

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 2QTD

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To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential.

For example:

•	A bond’s refers to the interest payment or payments paid by a bond.
•	A bond issuer is said to be in if it does not pay the interest or the principal in accordance with the terms of the indenture agreement or if it violates one or more of the issue’s restrictive covenants.
•	The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called .
•	A bond’s gives the issuer the right to call, or redeem, a bond at specific times and under specific conditions.

Suppose you read an article about the Golden Gate Bridge and Highway District bonds. It includes the following information:

Bridge Bonds Series A Dated 7-15-2005 4.375% Due 7-15-2055 @100.00

What is the issuing date of this bond?

7-15-2005

7-15-2055

If the coupon interest rate remains constant from the time of issue until the bond matures, then the bond is called a bond.

The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called the .

When are issuers more likely to call an outstanding bond issue?

When interest rates are higher than they were when the bonds were issued

When interest rates are lower than they were when the bonds were issued

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