Key Terms
Mortgage bond
Secured by a specific real asset (property, building)
Debenture
Unsecured; backed only by the corporation's overall creditworthiness
Primary market
Market for NEW securities (issuing firm receives proceeds) Secondary market: market for USED (previously issued) securit
Market order
Executes at current market price — fastest, no price guarantee Limit order: executes only at a specified price — more co
Inflation
General rise in prices; each dollar buys less over time
Deflation
Falling prices; associated with recession/depression; considered more dangerous than inflation The Fed targets moderate
Consumer Price Index (CPI)
Measures price changes for a basket of goods across the US
Bond returns
Periodic interest payments plus change in bond price; divided by beginning bond price Commercial paper (CP): short-term,
Municipal bonds (munis)
Bonds issued by state/local governments; interest often tax-exempt NCDs (Negotiable Certificates of Deposit): large CDs;
T-bills
Federal government debt; maturity under one year; sell at discount; no coupon
T-bonds
Federal government debt; 20 or 30 year maturities; semiannual coupons
T-notes
Federal government debt; 2, 3, 5, 7, or 10 year maturities; semiannual coupons
TIPS
Treasury bonds with principal that adjusts for inflation via CPI; best inflation hedge Total returns: all cash flows fro