Bonds, Yields, & Rates Review

These flashcards cover key concepts, definitions, and essential terms related to bonds, money markets, stockholder types, yields, and mortgage markets as discussed in the lecture.

Stocks

Part of capital markets, representing ownership in a company.

Money Markets

Where short-term debt instruments with a maturity of less than one year are traded.

Yields

The annualized return on very short-term, low-risk instruments.

Common Stockholders

True owners of the firm who have voting rights and share in profits through dividends.

Preferred Stockholders

Do not usually have voting rights but have priority for dividends and claims on assets.

Cumulative Voting

Allows shareholders to allocate all their votes to one candidate, benefiting minority shareholders.

Straight Voting

Gives one vote per share for each position in elections.

Liquidity

The ease with which an asset can be bought or sold in the market without affecting its price.

Default Risk

The risk of late or nonpayment of principal or interest.

Bond Equivalent Yields (BEY)

The quoted nominal yield on a security using simple interest.

Effective Annual Return (EAR)

The true annual return after accounting for compounding.

Discount Yield (DY)

The return based on how much less you paid for a security than its Face Value.

Holding Period Yield (HPY)

The total return on an investment over a specified period expressed as a percentage.

Treasury Bills (T-Bills)

Short-term obligations issued by the US government with maturities of 4, 13, 26, and 52 weeks.

Repurchase Agreements

Agreements involving the sale of securities with a promise to repurchase them at a specified date and price.

Commercial Paper

Unsecured promissory notes issued by companies to raise short-term cash.

Negotiable Certificate of Deposit

Bank-issued deposits that specify an interest rate and maturity date, negotiable in secondary markets.

Securitization

The process of transforming illiquid assets into marketable securities.

Lien

A legal claim on an asset, which ensures the lender’s right to take ownership in case of default.

Amortized Payment

A schedule of equal payments that fully pays off a loan over time.

Balloon Payment

A large lump-sum payment due at the end of a loan term instead of periodic smaller payments.

Adjustable-Rate Mortgage

A mortgage whose interest rate adjusts based on market conditions.

Fixed-Rate Mortgage

A mortgage with an interest rate that remains the same for the entire term.

General Obligation Bonds

Bonds backed by the full faith and credit of the issuing government, repaid through tax revenue.

Revenue Bonds

Bonds backed only by the revenue generated from the specific project they finance.