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Bus320p.7 - Chapter 7 Bonds and Their Valuation Bonds are...

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Chapter 7  Bonds and Their Valuation Bonds are issued by: 1) U.S. Treasury: No default risk 2) Corporations Different levels of default risk 3)      Municipalities: Issued by state and local governments with  different levels of default risk. 4)      Foreign Bonds:Issued by foreign govt’s and corporations;  have  different levels of default risk plus currency risk. Types of Corporate Bonds: 1) Debentures – an unsecured bond 2) Mortgage Bonds – secured by a lien on real property 3) Subordinated Debentures – have a subordinated position to  other debt in case of insolvency. 4) Zero Coupon Bonds – issued at a deep discount to  their face value Key Characteristics 1) Par Value – same as face value or maturity value; represents the amount  of money the firm borrows and promises to repay by a certain date;   always $1,000 unless told differently. 2) Coupon Rate – the annual interest rate the bond pays; always a % of Par 3) Coupon – the dollar amount of interest the bond pays per year 4) Call Provision – if bond is callable, the issuing firm has the right to  redeem the bonds prior to maturity.
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