Long-term Debt, Prefferd Stock, And Common Stock
Content
LONG – TERM DEBT, PREFERRED STOCK, AND COMMON STOCK
Features of Bond: 1.Par Value: Par value for a bond re repr pres esen ents ts the the am amou ount nt to be pa paid id th thee lender at the bond’s maturity. It is also called face value or principal. Par value is usually $1,000 per bond (or some multi ultipl plee of $1 $1,0 ,000 00). ). With th thee ma mao or r e!cept e!c eption ion of a "ero#c "ero#coup oupon on bon bond, d, mo most st bonds pay interest that is calculated on the basis of the bond’s par value. (he face value of a stoc% or bond).
ubordinated Debenture: lon+# term, unsecured debt instrument ith a loer claim on assets and income than other classes of dent %non as unior debt. In!o"e Bond: bon ond d he here re the the payment of interest is contin+ent upon sufficient earnin+s of the firm. #un$ Bond: hi+h hi+h#ris% #ris%,, hi+h hi+h#yiel #yield d (often (of ten uns unsecu ecured red)) bon bond d rated rated bel belo o investment +rade.
2.Coupon Rate: he stated rate of interest on a bond is referred to as the coupon rate. &or e!ample, a 1' percent coupon ra rate te indi indica cate tess th that at th thee is issu suer er i ill ll pay pay bondholders $1'0 per annum for every 1,000#par#value 1,000#par# value bond that they hold.
Mort%a%e onbthe ondissuer’s issue secured by aBond: mort+a+e property.. property &'uip"ent Tru Trust st Certifi!ate: n inte interm rmed ediat iatee to us usua uall lly y issu issuee by a tran transp spor orta tati tion on com compa pany ny su such ch as a rail railro road ad or air airline line that that is used sed to finance ne e-uipment.
3.Maturity: *onds almost alays have a stated maturity. his is the time hen the company is obli+ated to pay the bondholder the par value of the b bond. ond. Trustee: person or institution desi+nated by a bond issuer as the official rep eprresen esenta tati tiv ve of th thee bo bond ndho hollde derrs. ypically, a ban% serves as trustee.
in$in% Fund: &un &und d establ establish ished ed to
periodically a ma portion securi sec urity ty issue issueretire bef before ore matur turity ity.. ofhe hae corp co rpo orati ratio on is ree-u uired red to ma% a%ee periodic sin%in+#fu sin%in+#fund nd payments to a trustee.
Indenture: h hee le le+a +all a+re a+reem emen ent, t, al also so ca call lled ed the the de deed ed of trus trust, t, bet betee een n th thee corporation issuin+ bonds and the bondholders, establishin+ the terms of the bond issue and namin+ namin+ the trustee. Debenture: lon+ term, unsecured debt
Sinking fund of bond can take two forms: i) he he co corp rpor orat atio ion n can can ma% a%ee cash cash payment to trustee hich intern calls the bond for retention at the sin%in+
instrument.
fund call price.
ii) he second option available to issuin+
)rreara%e: late or overdue payment, hich may may be cumulative.
fund is to purchase the bond in the open mar%et and to deliver the +iven number of bonds to the trustee. trustee.
Parti!ipatin% Preferred to!$: Prefe Pre ferre rred d sto stoc% c% he here re the hol holde derr is alloe all oed d to partic participa ipate te in increa increasin sin+ + dividends if the common stoc%holders receive increasin+ dividends.
Balloon Pay"ent: payme payment nt on de debt bt that is much lar+er than other payments. he ultimate balloon payment is the entire principal at maturity. maturity.
Pri!e*&arnin%s Ratio: the the ma mar% r%et et price per share of a firm’ firm’ss common stoc% divided by the most recent 14 months of earnin+s per share.
(/oan interest)#fi!ed amount (at last payment) ########################################################2 fi!ed amount Periodic payment *alloon Payment
erial Bonds: n is issu suee of bon bonds ds ith ith different maturities, as distin+uished from an issue here all the bonds have identical maturities (term bonds).
Treasury to!$: 5ommon stoc% that has been repurchased and is held by the issuin+ company. (Issued 6toc% 7 8utstandin+ 6toc% reasury 6toc%)
Call Pro(ision: feature in an indenture that that pe perm rmit itss th thee is issu suer er to re repu purc rcha hase se securities at a fi!ed price (or a series of fi!ed prices) before maturity3 also called call feature.
)ssi%ned +or stated, Value: nominal value assi+ned to a share of no#par common stoc% that is usually far belo the actual issuin+ price. Addit Add itio iona nall Paid Paid-I -In n Ca Capi pita tal: l: &unds
Call Pri!e: he price at hich a security ith a call provision can be repurchased by the issuer prior to the security’s security’s maturity.
received by a company in a sale of common stoc% that are in e!cess of the par or stated value of the stoc%. -istin%: dmission of a e!chan+e. security for tradin+ on an or+ani"ed security so admitted is referred to as a listed security.
Wh When en techniques Ca Call ll pric price> e>Ma Mark rket et pr pric icee op open en market requires. When Call price<Market price call price techniques requires.
Proy: le+al document +ivin+ one person the authority to act for another. In business, it +enerally refers to the instru ins tructi ctions ons +iven +iven by a shareh sharehold older er ith i th re+ e+ar ard ds to votin otin+ + sh shar ares es of common stoc%.
When market interest rate of same debt fall then call option option is re require. quire. Cu"ulati(e Di(idends Feature: re-uir reuirem ement ent tha thatt all cum cumula ulativ tivee unp unpaid aid
dividends on the preferred before a dividend may be stoc% paid be onpaid the common stoc%. 9
Ma/ority0Rule Votin%: method of electin+ corporate directors, here each common share held carries one vote for each director position that is open3 also called statutory votin+. Cu"ulati(e Votin%: method of electin+ corporate directors, here each common share held carries as many votes as there ar aree dir irec ecttors ors to be el eleect cteed and and each each shareholder may accumulate these votes and cast them in any fashion for one or more particular directors.
Con(ertibility: co conv nver erttibi ibilit lity feature permits preferred stoc%holders to convert their preferred into shares of co com mmo mon. n. Pref Prefer erre red d st stoc oc%s %s that that permit this are called convertible preferred. eneral Cas ffers: It involves the sa sale le of secu securi riti ties es to all all inte intere rest sted ed inve invest stor ors3 s3 that that is is,, they they are are pu publ blic ic is issu sues es off offered ered to an any y inve invest stor or.. public issue, unless very small, must be re+istered ith ith the 6<5. Initial Publi! fferin% +IP,: n initial public offerin+ (IP8) is the first public#e-uity issue made by a firm as it +o +oes es from from priv privat atee o one ners rshi hip p to public onership. hese issues are referred to as unseasoned ne issues because no previous publicly oned common stoc% e!isted.
Duel0Class Co""on to!$: o classes of co comm mmon on st stoc oc%, %, us usua uall lly y desi desi+n +nat ated ed 5lass and 5lass *. 5lass is usually the ea%er votin+ class, and 5lass * is usually the stron+er stron+er.. cumulativ cumulativee feature ill or% only three years. Refundin%: :eplacin+ an old debt issue ith i th a ne ne on one, e, usua usuall lly y to lo loe err th thee interest cost.
In(est"ent Ban$ers: &inancial intermediaries ho perform a variety of ser servic vices, es, includ includin+ in+ aid aidin+ in+ in the sale of securities, facilitatin+ mer+ers and other corp corporat oratee reor reor+an +ani"ati i"ations, ons, actin+ as bro%ers to both individual
Call Pre" Pre"iu" iu":: he e! e!ce cess ss of th thee ca call ll price of a security over its par value. (5all price 7 Par value). value).
Cu"ula Cu" ulati( ti(e e Di( Di(ide idend: nd: ;iv ;i vid iden end d over on preferred stoc% that ta%es priority divi divide dend nd paym paymen ents ts on comm common on st stoc oc%. %. ;ividends may not be paid on the common stoc% until all past dividends on the preferred stoc% have been paid.
and inst instituti itutional clien clients, ts, and tradi tradin+ n+ for their ononal accounts. elf Re%istration: 6<5 re+u re+ulatio lation n alloin+ firms to re+ister an issue of securities and sell them over time as conditions arrant.
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