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DeHan Ch. 6 Vocab

Finance Ch. 6 Vocab

TermDefinition
Debt A loan to a firm, government, or individual.
Discounted Securities Securities selling for less than par value.
Treasury Bills (T-bills) Discounted debt instruments issued by the U.S. government.
Repurchase Agreement An arrangement where one firm sells some of its financial assets to another firm with a promise to repurchase the securities at a later date.
Federal Funds Overnight loans from one bank to another.
Banker's Acceptance An instrument issued by a bank that obligates the bank to pay a specified amount at some future date.
Commercial Paper A discounted instrument that is a type of promissory note, or "legal" IOU, issued by large, finically sound firms.
Certificate of Deposit An interest-earning time deposit at a bank or other financial intermediary.
Eurodollar Deposit A deposit in a foreign bank that is denominated in U.S. dollars.
Money Market Mutual Funds Pools of funds managed by investment companies that are primarily invested in short-term financial assets.
Term Loan A loan, generally obtained from a bank or insurance company, on which the borrower agrees to make a series of payments consisting of interest and principal.
Bond A long-term debt instrument.
Coupon Rate Interest paid on a bond or other debt instrument stated as a percentage of it face (maturity) value.
Government Bonds Debt issued by federal, state, or local governments.
Municipal Bonds Bonds issued by state or local governments.
Corporate Bonds Long-term debt instruments issued by corporations.
Mortgage Bond A bond backed by fixed assets. First-mortgage bonds are senior in priority to claims of second-mortgage bonds.
Debenture A long-term bond that is not secured by a mortgage on specific property.
Subordinated Debenture A bond which, in the event of liquidation, has a claim on assets only after the senior debt has been paid off.
Income Bond A bond that pays interest to the holder only if the interest is earned by the firm,
Putable Bond A bond that van be redeemed at the bondholder's option when certain circumstances exist.
Indexed (purchasing-power) Bond A bond that has interest payments based on an inflation index to protect the holder from loss of purchasing power.
Floating-rate Bond A bond whose interest rate fluctuates with shifts in the general level of interest rates.
Zero Coupon Bond A bond that pays no annual interest but is sold at a discount below par, thus providing compensation to investors in the form of capital appreciation.
Indenture A formal agreement (contract) between the issuer of a bond and the bondholders.
Call Provision A provision in a bond contract that gives issuers the right to redeem the bonds under specified terms prior to the normal maturity date.
Sinking Fund A required annual payment designed to amortize a bond issue.
Conversion Feature Permits bondholders to exchange their investments for a fixed number of shares of common stock.
Foreign Debt Debt sold by a foreign borrower but denominated in the currency of the of the country where it is sold.
Eurodebt Debt sold in a country other than the one in whose currency the debt is denominated.
LIBOR The London Interbank Offered Rate, the interest rate offered by the best London banks on deposits of other large, very creditworthy banks.
Yield to Maturity (YTM) The average rate of return earned on a bond if it is held to maturity.
Yield to Call (YTC) The average rate of return earned on a bond if it is held until the first call date.
Current (interest) Yield The interest payment divided by the market price of the bond.
Capital Gains Yield The percentage change in the market price of a bond over some period of time.
Interest Rate Price Risk The risk of changes in bond prices to which investors are exposed as the result of changing interest rates.
Interest Rate Reinvestment Risk The risk that income from a bond portfolio will vary because cash flow must be reinvested at current market rates.
Created by: sfrase
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