Question

Key Characteristics The -Select-discountpremiumparItem 1   value of a bond is its stated face value or maturity value, and its coupon interest rate is the stated annual interest rate on the bond. The maturity date is the date on which the par value must be repaid. A -Select-callredemptionsinkingItem 2   provision gives the issuer the right to redeem the bonds under specified terms prior to their normal maturity date, although not all bonds have this provision. Some bonds have -Select-redemption fundsinking fundcall fundItem 3   provisions which require the issuer to systematically retire a portion of the bond issue each year. Because sinking fund provisions facilitate their orderly retirement, bonds with these provisions are regarded as being -Select-riskiersaferequivalentItem 4   so they will have -Select-lowerequivalenthigherItem 5   coupon rates than similar bonds without these provisions. Bonds can be -Select-floatingzerofixedItem 6 -rate bonds with a constant coupon rate over the life of the bond, or they can be -Select-floatingzerofixedItem 7 -rate bonds with a coupon rate that varies over time depending on the level of interest rates. -Select-Annual couponZero couponFixed couponItem 8   bonds pay no annual interest but are sold at a -Select-premium aboveprice atdiscount belowItem 9   par, thus compensating investors in the form of capital appreciation. An original issue discount (OID) bond is any bond originally offered at a price -Select-above itsbelow itsequal toItem 10   par value. -Select-ConvertiblePerpetualPutableItem 11  bonds are exchangeable at the option of the holder for the issuing firm's common stock. Bonds can be issued with warrants giving the holder the option to purchase the firm's stock for a stated price, thereby providing a capital gain if the stock's price rises. -Select-IncomeConvertiblePutableItem 12   bonds contain a provision that allows holders to sell them back to the company prior to maturity at a prearranged price. -Select-IncomeDefaultPreferredItem 13  bonds pay interest only if the firm has earnings, while an indexed (purchasing power) bond bases interest payments on an inflation index to protect the holder from inflation. Mortgage bonds are backed by -Select-current assetsfixed assetsmarketable securitiesItem 14 . First mortgage bonds are senior in priority to claims of second mortgage bonds. Debentures are long-term bonds that are not secured by a mortgage. Subordinated debentures are bonds having claims on assets only after senior debt has been paid in full in the event of liquidation. -Select-Secured-debentureInvestment-gradeItem 15   bonds are rated triple B or higher, and many banks and other institutional investors are legally limited to only holding these bonds. In contrast, junk bonds are high-risk, high-yield bonds.

Answer 1

item1

PAR value of a bond is its stated face value or maturity value

item2

CALL provision gives the issuer the right to redeem bonds-----

item3

some bonds have SINKING FUND provision which require issuer to systematically retire a portion of bond issue each year

item4

.Bonds with these provisions are regarded as being SAFE

item 5

so they will have LOWER coupon rates

item6

bonds can be FIXED RATE bonds with a constant coupon rate---

item7

FLOATING RATE bonds with a coupon rate that varies over time

item8

ZERO COUPON bonds that pay no annual interest

item 9

but are sold at DISCOUNT thus compensating investors---

item 10

OID bond isoriginally offered at a price BELOW its par value

item11

CONVERTIBLE bonds are exchangeable at the option of the holder----

item 12

PUTTABLE bonds contain a provision that allows the holders

item13

INCOME BONDS pay inteest only if the company has earnings

item 14

mortgage bonds are backed by FIXED ASSETS

Item 15

INVESTMENT GRADE bonds are rated triple B