Question

1st blank options = par value, coupon payment, price

2nd blank options = bankruptcy, default, liquidation

3rd blank options = convertible provision, sinking fund provision, call provision

4th blank options= call provision, call premium, convertibility provision

5th blank options = floating-rate, fixed-rate

6th blank options = indenture, trustee, debenture

7th = multiple choice

1. Characteristics of bonds To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential. For example: • A bond's_ par value refers to its face value and the amount of money that the issuing entity borrows and promises to repay on the maturity date. • A bond issuer is said to be in default if it does not pay the interest or the principal in accordance with the terms of the indenture agreement or if it violates one or more of the issue's restrictive covenants. • A bond contract feature that requires the issuer to retire a specified portion of the bond issue each year is called a • A bond's allows the bondholder or preferred stockholder to voluntarily convert their bond or preferred shares, respectively, into a specified number or value of common shares. If the coupon interest rate is 4.375% for the first six months and changes to a rate equal to the 10-year Treasury bondrate plus 1.3% thereafter, the bond is called a bond. The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called the Issuers can gradually reduce the outstanding balance of a bond issue by using a sinking fund account into which they deposit a specified amount of money each year. To operationalize the sinking fund provision of an indenture, Issuers can (1) purchase a portion of the debt in the open market or (2) call the bonds if they contain a call provision. Under what circumstances would a firm be more likely to buy the required number of bonds in the open market as opposed to using one of the other procedures When interest rates are higher than they were when the bonds were issued When interest rates are lower than they were when the bonds were issued

Answer 1

The correct answers are

1) Par value

2) Default

3) Sinking fund provision

4) Convertibility provision

5) Floating rate

6) Indenture

7) When interest rate are lower than they were when they were issued