Chapter 6 (2)

corporate bond

a long-term debt instrument indicating that a corporation has borrowed a certain amount of money and promises to repay it in the future under clearly defined terms

par value, face value, principal

the amount of money the borrower must repay at maturity, and the value on which periodic interest payments are based

coupon rate

the percentage of a bond’s par value the will be paid annually, typically in two equal semiannual payments, as interest

subordination

in a bond indenture, the stipulation that subsequent creditors agree to wait until all claims of the senior debt are satisfied

eurobond

a bond issued by an international borrower and sold to investors in countries with currencies other than the currency in which the bond is denominated

foreign bonds

a bond that is issued by a foreign corporation or government and is denominated in the investor’s home currency and sold in the investor’s home market

valuation

the process that links risk and return to determine the worth of an asset

discount

the amount by which a bond sells below its par value

premium

the amount by which a bond sells above its par value

interest rate risk

the chance that interest rates will change and thereby change the required return and bond value. Rising rates, which result in decreasing bond values, are greatest concern