2. Characteristics of bonds
To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential.
For example:
•A bond’s is generally $1,000 and represents the amount borrowed from the bond’s first purchaser.•A bond issuer is said to be in 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.•The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called .•A bond’s gives the issuer the right to call, or redeem, a bond at specific times and under specific conditions.
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?
0.435%
4.375%
If the coupon interest rate remains constant from the time of issue until the bond matures, then the bond is called a bond.
The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called the .
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?
Deferred call provision
Delayed call provision
Declining call provision