What does it mean when a bond has a put option?

July 7, 2024 No Comments

A: A put option on a bond is a provision that allows the holder of the bond the right to force the issuer to pay back the principal on the bond. A put option gives the bond holder the ability to receive the principal of

What Does It Mean When a Bond Has a Sinking Fund?

July 7, 2024 No Comments

A: A sinking fund is a means of repaying funds borrowed through a bond issue through periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market. This provision is really just a pool of money set aside by

What does market segmentation theory assume about interest rates?

July 7, 2024 No Comments

A: Market segmentation theory states there is no relationship between the markets for bonds of different maturity lengths. MST holds that investors and borrowers have preferences for certain yields when they invest in fixed-income securities. These preferences lead to individual smaller markets subject to supply

What economic factors influence corporate bond yields?

July 7, 2024 No Comments

A: The economic factors that influence corporate bond yields are interest rates, inflation, the yield curve and economic growth. All of these factors affect corporate bond yields and exert influence on each other. The pricing of corporate bond yields is a multivariable, dynamic process in

What happens to the shares of a company that has been liquidated?

July 7, 2024 No Comments

A: The fate of a liquidating company’s shares depends on the type of liquidation the company is undergoing. The most common type of liquidation is bankruptcy, of which there are two types. In a Chapter 11 bankruptcy proceeding, the shares of a company may continue

What is a basis point (BPS)?

July 7, 2024 No Comments

A: Basis points, otherwise known as bps or “bips,” are a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal

What is a stripped bond?

July 7, 2024 No Comments

A: The quick answer to this question is that a stripped bond is a bond that has had its main components broken up into a zero-coupon bond and a series of coupons. To help explain one, let’s first describe a bond. A bond is a

What Is a Triple Tax-Free Municipal Bond?

July 7, 2024 No Comments

A: At its core, a triple tax-free municipal bond is just like any corporate bond — it is a debt instrument, a loan given to a government authority or municipality in order to help it meet certain financial objectives or complete projects in the community. As with

What are the pros and cons of operating on a balanced-budget?

July 7, 2024 No Comments

A: Few issues are more complicated, contentious and controversial in contemporary American politics than balancing the federal government’s budget. Those who argue in favor of a balanced budget offer many claims about the deleterious impacts of huge federal debt. Others counter that balanced budgets would

What is accrued interest, and why do I have to pay it when I buy a bond?

July 7, 2024 No Comments

A: A bond represents a debt obligation whereby the owner (the lender) receives compensation in the form of interest payments. These interest payments, known as coupons, are typically paid every six months. During this period the ownership of the bonds can be freely transferred between

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