50 Cards in this Set
Front | Back |
---|---|
with bonds, the interest rate is called..
|
the coupon rate
|
with t-bills, the interest rate is called...
|
both the discount rate and the risk-free rate (rsubrf)
|
the maturity date is...
|
when the principal must be repaid
|
equation for bonds
|
INT = (M x C)/m
-INT: interest payment
-M: par value of bond
-C: annual coupon rate
-m: # of payments per year
|
M will always be..
|
$1000
|
in event of liquidation, __ have priority over ___
|
debt holders; equity holders
|
order that everyone is paid
|
-1st: employees/customers
-2nd: gov't, debt holders (creditors/lenders/debt investors), and equity holders (owners/equity investors/stock holders)
|
do debt holders have voting rights
|
no, but they can exert some influence through bond indentures or loan contracts
|
federal gov't debt includes...
|
US treasury bills, notes, and bonds
|
Default Risk Premium (DRP) on a treasury instrument is..
|
always 0%
|
revenue generating bonds are repaid with...
|
revenue generated by the project that the bond financed
|
general obligation bonds are repaid with..
|
property tax dollars
|
corporate debt includes...
|
commercial paper, term loans, junk bonds and investment grade bonds
|
a call provision allows the bond issuer to..
|
call (pay off) the bond before the maturity date
|
call provisions generally __ the cost of debt, b/c ___
|
increase; add to investor's risk
|
a sinking fund requires..
|
the bond issuer to pay off the debt over the course of time
|
a sinking fund provision ___ the cost of debt
|
decreases
|
a debenture bond has..
|
no collateral backing it up
|
a mortgage bond..
|
is secured by some form of collateral
|
cost of mortgage bonds is higher/lower than cost of debenture bonds
|
lower
|
3 rating agencies
|
Moody's, Standard & Poor's, and Fitch
|
Moody's, Standard & Poor's, and Fitch
|
-are declaring themselves insolvent.
-assets get liquidated, proceeds go to customers, employees, gov't
-nothing left for owners
|
chapter 11 bankruptcy
|
-company is restructuring its debts
-company is negotiating new payment terms with its lenders
-if lenders agree to forgive some debts in exchange for ownership of company, former equity holders end up with nothing
|
chapter 9 bankruptcy
|
used when municipalities restructure their debts (Detroit)
|
chapter 13 bankruptcy
|
used when individuals attempt to restructure their debts
|
common stock..
|
-represents ownership
-never matures
-may/may not pay dividends
|
advantages of common stock over debt for the issuer:
|
-doesn't require company to make fixed payments
-doesn't mature and never has to be repaid
-improves company's debt ratio
|
disadvantages of common stock over debt for the issuer
|
-company may have to give up some voting control
-if company chooses to pay a dividend to owners, results in drain on company cash
-cost to issue common stock is higher than cost to issue debt (greater risk)
-common stock dividend payments are not tax deductible
|
preferred stock is..
|
-cross b/ween stocks and bonds
-pays a dividend
-stockholders can't force company into bankruptcy
|
lowest risk and return:
|
lowest risk and return:
|
market order is..
|
-an instruction to buy/sell a stock as soon as your order reaches the market.
-most common
|
limit order is..
|
order to buy/sell at a particular price
|
stop order
|
order to sell when price drops to a particular prie
|
buying on the margin..
|
-borrowing money from your broker to buy stock
-leverage: lucrative but risky
|
stocks are traded in...
|
equity markets
|
biggest stock market in US is..
|
New York Stock Exchange (NYSE)
|
securities with maturities of more than a year are traded in..
|
capital markets
|
securities that mature in a year or less are traded in..
|
money markets
|
nearly all stock market transactions are..
|
secondary market transactions
|
3 ways money is transferred from those who have money to those who need money
|
via a direct transfer
-through an investment banker
-through a financial intermediary
|
mutual funds are..
|
investment companies that pool resources of many investors in order to buy stocks/bonds of other companies
|
majority of mutual funds invest in..
|
stocks
|
growth funds invest in..
|
-firms that are growing faster than their industries in order to earn above average capital gains
-more focused on earning capital gains than on earning dividend income.
|
aggressive growth funds invest in..
|
IPO's and small firms
|
IPO's and small firms
|
firms that they consider to be undervalued
|
growth-and-income funds invest in..
|
-steadily growing blue chip companies that pay dividends
-attempt to earn long term capital appreciation with higher current income (from dividends) than growth funds earn
|
income/equity-income funds invest in..
|
firms that pay high dividends in order to ensure that current income stays ahead of inflation
|
sector funds invest in..
|
firms that are all within a particular industry
|
international funds invest in..
|
firms outside US
|
Emerging market funds invest in..
|
firms that are in rapidly growing developing economies
|