Coupon: Stated interest payment made on a bond Face value: the principle amount of a bond that is repaid at the end of the term. Also par value . Coupon rate : the annual coupon divided by the face value of a bond . Maturity : Date on which the principle amount of bond is paid YTM: the rate required in the market on a bond. (when int. rates fall, bond worth more). Bond value= C X (1-1/(1+r)^t)/r +F/(1+r)^t Int. rate risk: lower coup. rate & longer time to maturity cause greater int. rt. risk. Current yield : a bond’s annual coupon divided by its price. Eq. v. Debt : divs not tx deductible, debt (cost) is. Debt is liability, risk of failure. Creditors generally don’t have voting. Eq is ownership interest: residual claim – eq. paid after debt. Debt: bonds, notes, debent. Eq: stock. Indenture : written agreement between the corp. & lender detailing terms of debt issue. Registered form: from of bond issue in which company records ownership of each bond’ payment is made directly to owner of record. Bearer form: form of bond issue in which the bond is issued w/out record of owner’s name; payment is made to whoever holds bond. Debenture: an unsecured debt, usually w/ a maturity of 10 yrs or more. Note: unsec. debt, usual. < 10 yrs. Sinking fund : account managed by bond trustee for early bond redemption. Call provision : agreement giving the corp. option to repurchase bond at a specific price prior to maturity. Call premium : amount by which call price exceeds par value of bond. Deferred call provision : call provision prohibiting company from redeeming bond prior to certain date. Call protected bond
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