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Bus 342 Midterm 2
| Term | Definition |
|---|---|
| coupon | the stated interest payment made on a bond and paid every year |
| face value | the principal amount of a bond that is repaid at the end of the term |
| par value | the principal amount of a bond that is repaid at the end of the term |
| coupon rate | the annual coupon divided by the fave value of the bond |
| yield to maturity (YTM) | the rate required in the market on a bond...basically calculating the present value of cash flows as an estimate of the bond's current market value |
| discount bond | when a bond sells for less that face (or par) value |
| premium bond | when a bond sells for more than face (or par) value |
| interest rate risk | when interest rates fluctuate and change the worth of the bond: longer time=greater risk, lower coupon rate=greater risk |
| PAR Bond | when a bond sells for the same at the face/par value |
| Bond types | government bonds (Treasury Bills, notes, bonds), municipal bonds (not subject to federal tax), and corporate bonds (payment of interest is cost of business and tax deductible, but unpaid debt is liability) |
| Bills Notes Bonds | maturity up to 1 year maturity about 1 year but up to 10 years maturity greater than 10 years |
| Bond rating: Standard & Poor's | AAA, AA, A, BBB, BB, B, CCC, CC, C,D |
| Bond rating: Moody's | Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C, D |
| Registered bonds | the issuer keeps track of who owns the bond |
| bearer bonds | kind of like cash, whoever physically has it, owns it |
| debenture | unsecured (>10 year maturity) |
| note | <10 years and unsecured |
| bond | strictly speaking only secured, but can also be used as a generic term |
| seniority | in case of bankruptcy the $ goes by seniority...some bonds can be labeled senior or junior to make clear who will be paid first |
| sinking fund | money they put away to repay everyone at the end of the bond |
| call provision | feature on some bonds: issuer of bond has option to buy back the bond at a pre-determined time and price |
| convertible bonds | bond issued by a company. buyer has the option to convert bond into stocks before maturity |
| indenture | legal agreement between buyer and seller that details the terms of the bond |
| zero-coupon bond | bond without coupons |
| fixed rate | the coupon amount is fixed |
| floating rate | the rate depends on the market....the cash flows are not all even, they go with the market |
| bond market | most trading takes place over the counter (not in a centralized location like the NY stock exchange), HUGE market, but less active, not much transparency (not centralized so don't know exact volume of trading because all spread out) |
| bid | selling price back to dealer (what you could sell the bond for, back to the dealer) |
| asked | buying price (what you would buy the bond for) |
| proceed | the price you pay for the bond |
| treasury bills | 13,26,52 week maturity and no coupons |
| treasury notes | 1-10 years, pays coupons (1 every half a year) |
| treasury bonds | more than 10 years, pays coupons every half a year |
| Strips | each coupon as well as the principal are all issued separately, regular note/bond that pays coupons but breaks them up so you can sell all parts separately. Coupon parts are called C-strips and the principal part is called P-strips |
| TIPS | Treasury Inflation Protection Securities, get adjustments to cancel out inflation |
| Eurocurrencies | money outside the country that issued it (US dollar in Japan is a Eurodollar) (Japanese Yen in canada is euroyen) (A euro in the US is a euroeuro) |
| Eurobond | bond issued by US firm in US $ but sold to investors in Japan |
| Foreign bond | sold in a country and denoted in the currency of that country, but issuer is form another country |
| Yankee bond | foreign bond sold in US |
| Samurai bond | foreign bond sold in Japan |
| Bulldog bond | foreign bond sold in UK |
| nominal interest rate | interest rates that have NOT been adjusted for inflation |
| real interest rates | interest rates that HAVE been adjusted for inflation |
| interest rate risk premium | the longer the maturity the greater the risk so therefore investors need to be compensated for that extra risk so they get this extra premium |
| inflation premium | depends on what they think the economy is going to do (boom then inflation increase and they pay more for the premium, but if recession then less for the premium) |
| The 2 components of the required return R | dividend yield and capital gains yield (growth rate of the stock prices) |
| dividend yeild | the stock's expected cash dividend divided by its current price |
| capital gains yield | the dividend growth rate, or the rate at which the value of an investment grows |
| common stock | dividends: can increase if co. does well but can go down bankrupt: whatever is left after EVERYONE gets paid goes to them voting: have voting rights, elect board of directors |
| preferred stock | dividends: paid out first, fixed dividend, if co. withholds dividends, they get the back owed payments when they are able to before comm stock is paid dividends bankrupt: gets paid first voting: NO voting |
| cumulative voting | all directors are elected at once, each shareholder has (# of shares she owns)*(# of directors) votes...all these votes can be given to 1 director if they want |
| straight voting | elect on director at a time and get number of votes as you have shares. if have 50% +1 shares, then get to pick who you want every time |
| proxy voting | if own shares then get a form and if sign and send in, the assign voting rights to a person to vote for you |
| classes of stocks | A-shares=for public and have less voting power, B-shares=help keep voting rights for people that started the company and gives them more voting power |
| preemptive right | first shot at new stock issue to maintain proportional ownership if desired |
| IPO/Primary market | Initial public offerings (when a co. first issues stock) |
| Secondary market | almost like used shares...someone has already owned them before you |
| dealers | buy stock, own stock, then sell it |
| brokers | connects buyers and sellers but never owns the stock, just connects these two people |
| 2 Main Stock Markets | NYSE (New York Stock Exchange) and Nasdaq |
| Commission broker | execute customer (companies/investors) orders to buy and sell |
| specialist | dealer (buy, own, then sell), market maker in a few stocks |
| floor broker | execute orders for commission brokers |
| floor traders | trade for their own accounts |
| trading on the NYSE | specialist's post (girl in vid), commission broker receives order (guy 1), trade in crowd (guy 2), or trade with specialist (girl) |
Created by:
mbarnum3
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