Key Terms
Maturity date
The day the issuer pays back the face value.
Bond indenture
The legal contract. Contains: principal, maturity date, stated rate, payment schedule.
Carrying value (book value)
What the bond is recorded at on the books. Starts at the issue price; moves toward face value over time.
Debenture
Unsecured. Backed only by the company's creditworthiness.
Secured bond
Backed by specific assets. If the company defaults, those assets are sold to pay bondholders.
Term bond
Full principal paid all at once at maturity.
Serial bond
Principal paid in installments over time.
Callable bond (redeemable)
Issuer can buy it back early. Useful when market rates drop; company can retire expensive debt and reissue at lower rate
Putable bond
Bondholder can sell it back early. Opposite of callable.
Convertible bond
Bondholder can convert to common stock. One-way, one- time conversion.
Formula
(Market price / Face value) x 100 = bond quote
Simple interest
Calculated only on the original principal. Same dollar amount each period.
Compound interest
Interest earned also earns interest. Slightly more than simple.
Fully amortized note
Equal payments over the life of the loan. Each payment covers interest first; the rest reduces principal.
Four columns
1. Cash payment (same every period) 2.