Question

A(n) bond is a long-term contract under which a borrower agrees to make payments of interest and principal, on specific dates, to the holder of bond. There are four main types reflecting who the issuers are: ?-Select-1.Business2.Treasury?corporate, municipal, and foreign. Each type differs with respect to degree of risk and expected return. All have some common characteristics even though they may have different contractual features.

2. The par 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 call provision gives the issuing corporation 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 sinking fund call provisions which require the corporation 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 safer so they will have (-Select-1.lower2.equivalent )coupon rates than otherwise similar bonds without these provisions.

3. Longer maturity bonds have high-interest rate risk but low reinvestment rate risk, while higher coupon bonds have a higher level of (-Select-1.reinvestment rate 2.exchange rate)risk and a lower level of (-Select-1.interest rate2.exchange rate) risk. To account for the effects related to both a bond's maturity and coupon, many analysts focus on a measure called duration which is the bond's sensitivity to interest rates.

Answer 1

Answer:

1) Bond

Treasury

Risk

2) Par

Call

Sinking fund

Safer

Lower

Explanation:

Answer 2

Answer:

1) treasury, corporate, municpal 2) equivalent 3) reinvestment rate, interest rate

Explanation:

1) there are four main types of bonds: treasury, corporate, municpal and zero-coupon. Foreign bonds my fall into any of these category.

2) Sinking fund provisions require a bond issuer to put aside some money regularly to be paid to bond holder at bond maturity. The insurance provided by sinking funds allows for lower interest rates. Interest expenses reduce. This deosn't mean coupon rate of bonds will change.

3) higher coupon bonds have higher reinvestment risk because a high amount has to be reinvested to get required yeild-to-maturity. They have lower level of interest rate risk. This is because if the market interest rate rises, their coupon rate will not fall as much as that of lower coupon bond