Bonds:
           Some Basic Terminology
      Bond: A long-term debt instrument.
      Par Value: Principal or face value.
      Indenture: Bond agreement (collateral pledged if any, 
      dividend restrictions, limits on future debt offerings, etc.)
      Coupon Rate: Stated interest payment divided by the par 
      value.
      Current Yield: Stated interest payment divided by the 
      current bond price.
      Yield-to-Maturity: That rate at which the present value of 
      all future interest payments and the principal payment is 
      equal to the current bond price. (most significant yield).
             Bond Ratings
      Aaa, Aa, A, Baa, Ba, B, Caa, etc.
      Investment Grade - Baa or better
      Speculative or Junk - Ba or lower
      Used extensively to evaluate the risk of default 
      on a bond issue.
      Major Rating Services
      – Moody’s Investor Services
      – Standard & Poor’s Corp.
      Types and Characteristics of
         Corporate Bonds
      Debenture: Unsecured bond.
      Subordinated Debenture: Claims honored after the 
      claims of secured debt and unsubordinated 
      debentures have been satisfied.
      Zero Coupon Bonds: Do not pay any interest over 
      the life of the bond (Sold at a deep discount).
      Junk Bonds: High risk, high yield bonds.
      Floating Rate Bonds: Interest paid is tied to some 
      market rate (e.g., yield on Treasury bonds). 
      Market price remains relatively stable even though 
      interest rates vary.
      Mortgage Bond: Secured by real property.
      Sinking Fund: Typically, a requirement to retire a portion 
      of the bond issue each year. Outstanding bonds may be 
      purchased in the open market, or they may be called in by 
      lottery if necessary. (May or may not include a call 
      premium).
      Convertible Bond: Provides for conversion into common 
      stock at a fixed price.
      Callable Bond: Issuer has the right to call in the bonds 
      prior to maturity. Usually, a premium that declines over 
      time (e.g., one year’s interest initially) must be paid to 
      bondholders. Most bonds contain some kind of call 
      provision.
               Bond Issuers
       Treasury Bonds
       – Issued by the federal government.
       Municipal Bonds
       – Issued by state and local governments.
       Corporate Bonds
       – Issued by corporations.
       Foreign Bonds
       – Issued by foreign governments or foreign corporations.