| Bond | A security issued by a borrower that obligates the issuer to make specified payments to the holder over a specific period. A coupon bond obligates the issuer to make interest payments called coupon payments over the life of the bond, then to repay the face value at maturity.
|
 |
|
|
| Bond indenture | The contract between the issuer and the bondholder.
|
|
|
|
| Collateral | A specific asset pledged against possible default on a bond. Mortgage bonds are backed by claims on property. Collateral trust bonds are backed by claims on other securities. Equipment obligation bonds are backed by claims on equipment.
|
|
|
|
| Convertible bond | A bond with an option allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm. A conversion ratio specifies the number of shares. The market conversion price is the current value of the shares for which the bond may be exchanged. The conversion premium is the excess of the bond's value over the conversion price.
|
|
|
|
| Coupon rate | A bond's interest payments per dollar of par value.
|
|
|
|
| Credit risk | Default risk.
|
|
|
|
| Current yield | A bond's annual coupon payment divided by its price. Differs from yield to maturity.
|
|
|
|
| Debenture or unsecured bond | A bond not backed by specific collateral.
|
|
|
|
| Debt securities | Bonds; also called fixed-income securities.
|
|
|
|
| Default premium | A differential in promised yield that compensates the investor for the risk inherent in purchasing a corporate bond that entails some risk of default.
|
|
|
|
| Discount bonds | Bonds selling below par value.
|
|
|
|
| Face value | The maturity value of a bond.
|
|
|
|
| Floating-rate bond | A bond whose interest rate is reset periodically according to a specified market rate.
|
|
|
|
| Horizon analysis | Forecasting the realized compound yield over various holding periods or investment horizons.
|
|
|
|
| Investment-grade bond | Bond rated BBB and above or Baa and above. Lower-rated bonds are classified as speculativegrade or junk bonds.
|
|
|
|
| Par value | The face value of the bond.
|
|
|
|
| Premium bonds | Bonds selling above par value.
|
|
|
|
| Put bond | A bond that the holder may choose either to exchange for par value at some date or to extend for a given number of years.
|
|
|
|
| Realized compound return | Yield assuming that coupon payments are invested at the going market interest rate at the time of their receipt and rolled over until the bond matures.
|
|
|
|
| Reinvestment rate risk | The uncertainty surrounding the cumulative future value of reinvested bond coupon payments.
|
|
|
|
| Sinking fund | A procedure that allows for the repayment of principal at maturity by calling for the bond issuer to repurchase some proportion of the outstanding bonds either in the open market or at a special call price associated with the sinking fund provision.
|
|
|
|
| Speculative-grade bond | Bond rated Ba or lower by Moody's, or BB or lower by Standard & Poor's, or an unrated bond.
|
|
|
|
| Subordination clause | A provision in a bond indenture that restricts the issuer's future borrowing by subordinating the new leaders' claims on the firm to those of the existing bond holders. Claims of subordinated or junior debtholders are not paid until the prior debt is paid.
|
|
|
|
| Yield to maturity | A measure of the average rate of return that will be earned on a bond if held to maturity.
|
|
|
|
| Zero-coupon bond | A bond paying no coupons that sells at a discount and provides payment of face value only at maturity.
|