chapter 4 key term - Omar M. Al Nasser, Ph.D., MBA....

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1 | P a g e Omar M. Al Nasser, Ph.D., MBA. Visiting Assistant Professor of Finance School of Business Administration University of Houston-Victoria Email: alnassero@uhv.edu Glossary Chapter 4 annuity An annuity is a series of payments of a fixed amount for a specified number of periods. bond A promissory note issued by a business or a governmental unit. call provision Gives the issuing corporation the right to call the bonds for redemption. The call provision generally states that if the bonds are called, the company must pay the bondholders an amount greater than the par value, a call premium. Most bonds contain a call provision. capital gains yield Results from changing prices and is calculated as (P 1 – P 0 )/P 0 , where P 0 is the beginning-of-period price and P 1 is the end-of-period price. Chapter 11 The business reorganization chapter of the Bankruptcy Reform Act. The chapter provides for the reorganization, rather than the liquidation, of a business. Chapter 7 The chapter of the Bankruptcy Reform Act that provides for the liquidation of a firm to repay creditors. convertible bond Security that is convertible into shares of common stock, at a fixed price, at the option of the bondholder. corporate bond Debt issued by corporations and exposed to default risk. Different corporate bonds have different levels of default risk, depending on the issuing company’s characteristics and on the terms of the specific bond. coupon interest rate Stated rate of interest on a bond, defined as the coupon payment divided by the par value. coupon payment Dollar amount of interest paid to each bondholder on the interest payment dates. current yield (on a bond) The annual coupon payment divided by the current market price. debenture An unsecured bond, and as such, it provides no lien against specific property as security for the obligation. Debenture holders are, therefore, general creditors whose claims are protected by property not otherwise pledged. default risk The risk that a borrower may not pay the interest and/or principal on a loan as it becomes due. If the issuer defaults, investors receive less than the promised return on the bond. Default risk is influenced by both the
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2 | P a g e financial strength of the issuer and the terms of the bond contract, especially whether collateral has been pledged to secure the bond. The greater the default risk, the higher the bond’s yield to maturity. default risk premium (DRP) The premium added to the real risk-free rate to compensate investors for the risk that a borrower may not pay the interest and/or principal on a loan as they become due. development
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chapter 4 key term - Omar M. Al Nasser, Ph.D., MBA....

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