Question

e effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential.

For example:

•	A bond’s   is generally $1,000 and represents the amount borrowed from the bond’s first purchaser.
•	A bond issuer is said to be in   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.
•	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   .
•	A bond’s   allows a bondholder or preferred stockholder to convert their bond or preferred share, respectively, into a specified number or value of common shares.

Suppose you read an article about the Golden Gate Bridge and Highway District bonds. It includes the following information:

Bridge Bonds Series A Dated 7-15-2005 4.375% Due 7-15-2055 @100.00

What is the maturity date of this bond?

7-15-2005

7-15-2055

If the coupon interest rate is 4.375% for the first six months and changes to a rate equal to the 10-year Treasury bond rate plus 1.3% thereafter, the bond is called a   bond.

Which feature of a bond contract allows the issuer to redeem a bond issue immediately in its entirety at an amount greater than par value prior to maturity?

Convertible provision

Put provision

Call provision

Deferred call provision

Which term is used to describe a call provision in which the issuer is prevented from calling a portion or the entire issue for several years during the early years of the bond issue?

Declining call provision

Deferred call provision

Delayed call provision

Answer 1

1.
Par value or face value

2.
Default

3.
Indenture

4.
Convertibility Provision

5.
7-15-2055

6.
Floater

7.
Call provision

8.
Deferred call provision