Exam 13: The Bond Market

A negatively sloped yield curve occurs when short-term rates exceed long-term rates.

Split coupon bonds offer investors special tax advantages.

The indenture specifies the terms of a bond.

Calculation of the returns earned on a high-yield security should include the sale price of the bond as well as the interest received.

A split coupon bond combines a zero coupon bond with a high coupon bond.

Virtually all bonds have each of the following except

Serial bonds

The term of an extendible bond is known with certainty.

One advantage to the issuing firm of a split coupon bond is that cash is initially conserved.

Mortgage bonds are secured by property.

If a bond has a call feature, it often has a call penalty, which must be paid to the bondholder in partial compensation for the early retirement of the bond.

Equipment trust certificates are

Debentures are bonds that are secured by equipment.

Under current law, American corporations may not issue bearer bonds with coupons attached.

A call feature is an option while a sinking fund requires a mandatory payment by the firm.

The coupon on the variable interest rate bond varies with changes in interest rates.

Interest accrues on a zero coupon bond but not on a term bond.

If an American investor buys a Euro-bond and the value of the dollar rises, that individual earns a larger return on the investment.

A fallen angel is

An investor concerned with safety of principal may purchase preferred stock instead of bonds issued by the same company.