Business Finance Chapter 12 vocab

Bond

a long-term debt instrument that specifies the principal, the interest, and the maturity date

Yield

the annual rate of return on a bond if the bond were held to maturity

Indenture

Document specifying the terms of a debt issue

Default

failure to meet the terms specified in the indenture of a debt issue

Trustee

Representative of the rights of bondholders who enforces the terms of the indenture

Credit ratings

classification schemes designed to indicate the risks associated with a particular debt instrument

Mortgage bonds

Bonds secured by a claim on real estate

collateral

Assets used to secure a loan or debt instrument

Equipment Trust Certificates

serial bonds issued by transportation companies that are secured by the equipment purchased with the proceeds of the loan

Debentures

unsecured bonds

subordinated debenture

Bonds with a lower (subordinate) claim on the firm's assets than the claims of other debt instruments

Income bond

Bonds whose interest is paid only when it is earned by the firm

Revenue bonds

Bonds supported by the assets the bonds financed; income bonds issued by state and local governments

convertible bonds

Bonds that can be converted into stock at the bondholder's option

Variable interest rate bonds

long-term debt instruments whose interest payments vary with changes in short-term interest rates or the Consumer Price Index

Zero coupon bonds

bonds that are initially sold at a discount and on which interest accrues and is paid at maturity

High-yield securities (junk bonds)

poor-quality debt with high yields and high probability of default

Eurobond

bond sold in a foreign country but denominated in the currency of the issuing firm

Serial bonds

debt issued in a series so that some of the bonds periodically mature

Sinking fund

series of periodic payments to retire a bond issue

Call feature

right of a debtor to retire (call) a bond prior to maturity

Tax-exempt bonds

bonds issued by a state or municipal government whose interest is exempt from federal income taxation