FMP 17. Corporate Bonds

Learning Objectives

1) Describe features of bond trading and explain the behavior of bond yield.

2) Describe a bond indenture and explain the role of the corporate trustee in a bond indenture.

3) Define high-yield bonds and describe types of high-yield bond issuers and some of the payment features unique to high-yield bonds.

4) Differentiate between credit default risk and credit spread risk.

5) Describe event risk and explain what may cause it to manifest in corporate bonds.

6) Describe the different classifications of bonds characterized by issuer, maturity, interest rate, and collateral.

7) Describe the mechanisms by which corporate bonds can be retired before maturity.

8) Define recovery rate and default rate, and differentiate between an issue default rate and a dollar default rate.

9) Evaluate the expected return from a bond investment and identify the components of the bond’s expected return.