IDENTIFICATION

Bond a long-term debt instrument

Treasury Bonds Bonds issued by the federal
government, sometimes referred to as government
bonds
Corporate Bonds Bonds issued by corporation
Municipal Bonds Bonds issued by state and
local governments
Foreign Bonds Bonds issued by foreign
governments or by foreign corporations
Par Value The face value of a bond
Coupon Payment The specified number of dollars
of interest paid each year
Coupon Interest Rate The stated annual interest
rate on a bond
Fixed-Rate Bond A bond whose interest rate is
fixed for its entire life
Floating-Rate Bond A bond whose interest rate
fluctuates with shifts in the general level of interest
rates
Zero Coupon Bond A bond that pays no annual
interest but is sold at a discount below par, thus
compensating investors in the form of capital
appreciation

Convertible Bond A bond that is exchangeable at

the option of the holder for the issuing firms
common stock
Warrant a long-term option to buy a stated
number of shares of common stock at a specified
price
Putable Bond A bond with a provision that allows
its investors to sell it back to the company prior to
maturity at a prearranged price
Index (Purchasing Power) Bond A bond that has
interest payments based on an inflation index so as
to protect the holder from inflation
Discount Bond A bond that sells below its par
value; occurs whenever the going rate of interest is
above the coupon rate
Premium Bond A bond that sells above its par
value; occurs whenever the going rate of the
interest is below the coupon rate
Yield to Maturity (YTM) The rate of return earned
on a bond if it is held to maturity
Yield to Call (YTC) The rate of return earned on a
bond when it is called before its maturity date
Price (Interest Rate) Risk The risk of a decline in
a bonds price due to an increase in interest rates

Original Issue Discount (OID) Bond - Any bond

originally offered at a price below its par value

Reinvestment Risk the risk that a decline in

interest rates will lead to a decline in income from a
bond portfolio

Maturity Date A specified date in which the par

value of a bond must be repaid

Investment Horizon The period of time an

investor plans to hold a particular investment

Original Maturity The number of years to maturity

at the same time a bond issued

Duration The weighted average of the time it

takes to receive each of the following bonds cash
flows

Call Provision A provision in a bond contract that

gives the issuer the right to redeem the bonds
under specified terms prior to the normal maturity
date
Sinking Fund Provision A provision in a bond
contract that requires the issuer to retire a portion
of the bond issue each year

Types of Corporate Bonds

Mortgage Bonds A bond backed by fixed assets.
First Mortgage bonds are senior in priority to claims
of second mortgage bonds