2. Characteristics of bonds

To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential.

For example:

	A bond's refers to its face value and the amount of money that the issuing entity borrows and promises to repay on the maturity date.
	A bond issuer is said to be in if it does not pay the interest or the principal in accordance with the terms of the indenture agreement or if it violates one or more of the issue's restrictive covenants.
	The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called .
	A bond's allows a bondholder or preferred stockholder to convert their bond or preferred share, respectively, into a specified number or value of common shares.

Suppose you read an article about the Golden Gate Bridge and Highway District bonds. It includes the following information:

Bridge Bonds Series A Dated 7-15-2005 4.375% Due 7-15-2055 @100.00

What is the coupon interest rate of this bond?

4.375%

0.435%

If the coupon interest rate is 4.375% for the first six months and changes to a rate equal to the 10-year Treasury bond rate plus 1.3% thereafter, the bond is called a bond.

Which feature of a bond contract allows the issuer to redeem bonds under specified terms prior to maturity?

Call provision

Deferred call provision

Convertible provision

Sinking fund provision

Which term is used to describe a call provision in which the issuer is prevented from calling a portion or the entire issue for several years during the early years of the bond issue?

Sinking fund provision

Deferred call provision

Declining call provision