1) To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential.
For example:
• A bond’s
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is generally $1,000 and represents the amount borrowed from the bond’s first purchaser.
• A bond issuer is said to be in
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if it does not pay the interest or the principal in accordance with the terms of the indenture agreement or if it violates one or more of the issue’s restrictive covenants.
• A bond contract feature that requires the issuer to retire a specified portion of the bond issue each year is called a
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.
• A bond’s
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gives the issuer the right to call, or redeem, a bond at specific times and under specific conditions.
2)Suppose you read an article about the Golden Gate Bridge and Highway District bonds. It includes the following information:
Bridge Bonds Series A Dated 7-15-2005 4.375% Due 7-15-2055 @100.00
What is the coupon interest rate of this bond?
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3) Which feature of a bond contract allows the issuer to redeem a bond issue immediately in its entirety at an amount greater than par value prior to maturity?
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4)Which term is used to describe a call provision in which the issuer is prevented from calling a portion or the entire issue for several years during the early years of the bond issue?
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