CSC Chapter 6 - Fixed Income Securities: Features & Types

Short-term bond

A bond with greater than one year but less than five years to maturity

Medium-term bond

A bond with 5 to 10 years remaining to maturity.

Long-term bond

A bond with a time to maturity that is 10 years or over

Strip bond

Created when investment dealers break up marketable bonds into simple components that investors can purchase. An investment entitling its owner to receive only the face value of a bond at maturity

Callable bond

A bond that the issuer has the right to pay off before its maturity date

Extendible bond

A short-term bond that allows the investor to extend the maturity date of the bond

Retractable bond

Bond that may be sold back to the issuer at a pre-specified price before maturity

Bond

A financial security that represents a promise to repay a fixed amount of funds

Election period

With both extendible and retractable bonds, the decision to exercise the maturity option must be made during a specific time called the

Convertible bond

A bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock

Sinking fund

Sums of money that are set aside out of earnings each year to provide for the repayment of all or part of a debt issue by maturity

Purchase fund

A fund set up by a company to retire through purchases in the market a specified amount of its outstanding preferred shares or debt if purchases can be made at or below a stipulated price

Protective provisions

Safeguards in the bond contract to guard against any weakening in the security holder's position. The object is to create a strong instrument that does not force the company into a financial constraint

Treasury bills

Short-term government securities issued at a discount from face value and returning the face amount at maturity

Real return bonds

Pay interest throughout the life of the bond and repay the original principal amount upon maturity. Unlike conventional bonds, however, the coupon payments and principal repayment are adjusted for inflation to provide a fixed real coupon rate

Guaranteed bonds

Think co-signor. Issuer sells unsecured (no collateral) bonds that are backed by issuers promise to pay as well as another company's promise to pay

Instalment Debenture

The instrument that most municipalities use to raise capital from market sources is the

First mortgage bond

Are the senior securities of a company. They are so named because they constitute a first charge on the company's assets, earnings, and undertakings before unsecured current liabilities are paid.

Foreign bonds

Bonds sold in a foreign country and denominated in that country's currency

Eurobond

Bond denominated in a currency other than that of the country in which it is sold

Collateral trust bond

Are secured by a pledge of securities, or collateral. They differ from mortgage bonds that are secured by a pledge of real property

Equipment Trust Certificates

Pledge equipment as security instead of real property. For example, a railway company may issue these kinds of bonds, using its locomotives and train cars (called rolling stock) as security

Banker's Acceptance

Is a commercial draft (i.e., a written instruction to make payment) drawn by a borrower for payment on a specified date. A ______ is guaranteed at maturity by the borrower's bank.

Commercial Paper

Is either an unsecured promissory note issued by a corporation or asset-backed security backed by a pool of underlying financial assets