AFM121 Chapter Notes - Chapter 6: Interest Rate Risk, United States Treasury Security, Yield Spread
16 Jun 2018
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Chapter 6
Fixed Income Security: Provides a known income stream to the holder and has a
known maturity date.
Bonds: Debt instruments secured by real assets, often called mortgage bonds.
Bond Trust Indenture: A legal contract between the bondholder and the bond
issuer, details the terms of payment, maturity, security and bond covenants.
Debentures: Unsecured bonds.
Term to Maturity: The remaining life of a bond.
Denomination: The face value of a bond.
Short Term Bonds: Maturities of 1 to 5 years.
Medium Term Bonds: Maturities ranging from 5 to 10 years.
Long Term Bonds: Maturities beyond 10 years.
Liquid Bonds: Bonds with significant trading volumes.
Negotiable Bonds: Bonds in deliverable form.
Marketable Bonds: Bonds for which there is a ready market. Have specified
interest payments and maturity dates and are transferrable.
Real Return Bonds: Bonds with a yield indexed to inflation.
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Floating Rate Bonds (or debentures): Have adjustable coupon rates that are
typically tied to treasury bill rates or some other short-term interest rate.
Callable Bonds: Gie the issue the optio to all o epuhase outstadig
bonds at predetermined call prices (which are typically at a premium over par) at
specified times.
Call Protection: Refers to the period of time prior to the first call date during
which callable bonds cannot be called.
Canada Yield Call: Permits the issuer to call in the issue at the greater of par or a
price based on the yield on a Government of Canada bond with the same maturity
plus a yield spread (eg 0.45%).
Sinking Fund Provisions: Require the issuer to repurchase a certain amount of
debt per year. (no premium is provided in the repurchase price).
Sinking Funds: Represent the funds set aside by the company for this purchase.
Purchase Fund Provisions: Similar to sinking fund provisions; however, they
require the repurchase of a certain amount of debt only if the debt can be
repurchased at or below a given price.
Retractable Bonds: Allow the bondholder to sell the bonds back to the issuer at
predetermined prices at specified times.
Extendible Bonds: Allow the bondholder to extend the maturity date of the bond.
Extendible and Retractable Bonds: Behave like short-term bonds in periods of
rising interest rates and long-term bonds in periods of decreasing interest rates.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Fixed income security: provides a known income stream to the holder and has a known maturity date. Bonds: debt instruments secured by real assets, often called mortgage bonds. Bond trust indenture: a legal contract between the bondholder and the bond issuer, details the terms of payment, maturity, security and bond covenants. Term to maturity: the remaining life of a bond. Short term bonds: maturities of 1 to 5 years. Medium term bonds: maturities ranging from 5 to 10 years. Marketable bonds: bonds for which there is a ready market. Have specified interest payments and maturity dates and are transferrable. Real return bonds: bonds with a yield indexed to inflation. Floating rate bonds (or debentures): have adjustable coupon rates that are typically tied to treasury bill rates or some other short-term interest rate. Callable bonds: gi(cid:448)e the issue(cid:396) the optio(cid:374) to (cid:862)(cid:272)all(cid:863) o(cid:396) (cid:396)epu(cid:396)(cid:272)hase outsta(cid:374)di(cid:374)g bonds at predetermined call prices (which are typically at a premium over par) at specified times.
