Bonds & Cash Equivalents
Series 65 Section II: money market instruments, government, municipal, corporate and foreign bonds, call features, conversion, and the yield relationships the exam loves.
15 terms in this unit.
Certificate of Deposit (CD)
A bank time deposit paying a fixed rate for a fixed term, FDIC insured.
Commercial Paper
Unsecured short-term corporate debt, 270 days or less.
Treasury Inflation-Protected Securities (TIPS)
Treasuries whose principal adjusts with the CPI.
Zero-Coupon Bond
Sold at a deep discount, pays no interest, matures at par.
Asset-Backed Securities (ABS / MBS)
Bonds backed by pools of loans - mortgages, auto loans, credit cards.
General Obligation (GO) Bond
A municipal bond backed by the issuer's full faith, credit, and taxing power.
Revenue Bond
A municipal bond repaid only from the revenue of a specific project.
Insured Municipal Bond
A muni with third-party insurance guaranteeing principal and interest.
Municipal Bond Tax Treatment
Interest usually federally tax-free; gains are not.
Callable Bond (Call Feature)
The issuer may redeem the bond before maturity.
Yield to Call (YTC)
The annualized return if the bond is held until its first call date.
Current Yield
Annual interest divided by the bond's current market price.
Bond Price and Yield Relationships
Discount bond: coupon < CY < YTM < YTC. Premium bond: the reverse.
Convertible Bond / Preferred
A bond or preferred stock exchangeable into a set number of common shares.
Foreign Bonds (Sovereign, Corporate, Yankee)
Debt issued by foreign governments and companies.