Finance cheat sheet

CH10 The government debt totaled 27% of total credit market debt although this number has risen since that time.Mortgages comprised 28%, Corporate and Foreign Bonds 22% and Municipal Bonds 5% of total credit market debt in the third quarter of 2008. The issuing company may choose to call the bond and require the bondholder to turn in the bond in exchange for receiving the bond's call price. A callable bond gives the issuing company the right to call in the bond by paying the bondholder the call price. Bulldog bonds are issued in Great Britain by non-British borrowers and are denominated in British pounds. Foreign bonds that are denominated in the currency of the country in which it is sold are given descriptive names such as Yankee bonds sold in the U.S. by non-U.S. borrowers and Bulldog bonds sold in Great Britain. When income from specified assets is used to service the bond it is called an asset-backed bond. Asset backed bonds are backed by the income from specified assets. The investor's best choice is A rated debt. BB is speculative which is not what the investor desires and given the investor's forecast AA and AAA rated bonds are not necessary and would result in a lower promised yield than an A rated bond. The TIE ratio = EBIT / Int. Exp. = $66/$6 = 11; Current Ratio = Cur. Assets / Cur. Liabilities = $79 / $52 = 1.52; Debt/Equity = $65 / ($79 + $72 - $65) = $0.76. The bond meets the AAA criteria for theTIE since it is above 10 but fails to meet the criteria for the current ratio and the debt to equity ratio. The bond meets all the requirements for the A rated bond. A sinking fund where the issuer sets aside money each year to ensure the bond principal can be repaid when due. A sinking fund where the issuer may repurchase a given fraction of the outstanding bonds each year. A requirement that all future debt issues must be subordinated to the current debt. A credit default swap provides the swap buyer with insurance that covers the par value of the security