1. Briefly describe the following types of debt: a. Term loan b. Bond c. Mortgage bond d. Senior debt; junior debt e. Debenture f. Municipal bond
2. Briefly explain the following debt features: a. b. c. d.
3. a. b. Indenture Restrictive covenant Trustee Call provision (1) (2) (3) (4) What are the three primary bond rating agencies? What do bond ratings measure? How do investors interpret bond ratings? What is the difference between an A-rated bond and a B-rated bond? Why are bond ratings important to investors? Why are ratings important to businesses that issue bonds?
4. a. b. c. (1) (2) What is interest rate risk? What is price risk? What is reinvestment rate risk?
5. Is this statement true or false? “The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term rates, so short-term bond prices are more sensitive to interest rate changes than are long-term bond prices.” Explain your answer.