FINA 3315 EXAM 2 CORE CORPORATE
FINANCE CONCEPTS REVIEW 2026
◉ Floating-Rate Bonds.
Answer: Bonds with coupon rates periodically reset according to a
specified market rate.
◉ Forward Rate.
Answer: The inferred short-term rate of interest for a future period
that makes the expected total return of a long-term bond equal to
that of rolling over short-term bonds.
◉ Horizon Analysis.
Answer: Analysis of bond returns over a multiyear horizon, based on
forecasts of the bond's yield to maturity and the reinvestment rate of
coupons./Forecast of bond returns based largely on a prediction of
the yield curve at the end of the investment horizon.
◉ Indenture.
Answer: The document of defining the contract between the bond
issuer and the bondholder.
◉ Investment Grade Bonds.
,Answer: A bond rated BBB and above by Standard & Poor's or Baa
and above by Moody's.
◉ Liquidity Preferance Theory.
Answer: The theory that investors demand a risk premium on long-
term bonds.
◉ Liquidity Premium.
Answer: The extra expected return demanded by investors as
compensation for the greater risk of longer-term bonds.
◉ Premium Bonds.
Answer: Bonds selling above par value.
◉ Put Bond.
Answer: A bond that the holder may choose either to exchange for
par value at some date or to extend for a given number of years.
◉ Realized Compound Return.
Answer: Compound rate of return on a bond with all coupons
reinvested until maturity.
◉ Reinvestment Rate Risk.
, Answer: Uncertainty surrounding the cumulative future value of
reinvested bond coupon payments.
◉ Sinking Fund.
Answer: A bond indenture that calls for the issuer to periodically
repurchase some proportion of the outstanding bonds prior to to
maturity.
◉ Speculative Grade Bond (Junk Bond).
Answer: A bond rated BB or lower by Standard and Poor's, Ba or
lower by Moody's, or unrated.
◉ Subordination Clauses.
Answer: Restrictions on additional borrowing that stipulate that
senior bondholders will be paid first in the event of bankruptcy.
◉ Term Structure of interest Rates.
Answer: The relationship between yields to maturity and terms to
maturity across bonds.
◉ Yield Curve.
Answer: A graph of yield to maturity as a function of term to
maturity.
FINANCE CONCEPTS REVIEW 2026
◉ Floating-Rate Bonds.
Answer: Bonds with coupon rates periodically reset according to a
specified market rate.
◉ Forward Rate.
Answer: The inferred short-term rate of interest for a future period
that makes the expected total return of a long-term bond equal to
that of rolling over short-term bonds.
◉ Horizon Analysis.
Answer: Analysis of bond returns over a multiyear horizon, based on
forecasts of the bond's yield to maturity and the reinvestment rate of
coupons./Forecast of bond returns based largely on a prediction of
the yield curve at the end of the investment horizon.
◉ Indenture.
Answer: The document of defining the contract between the bond
issuer and the bondholder.
◉ Investment Grade Bonds.
,Answer: A bond rated BBB and above by Standard & Poor's or Baa
and above by Moody's.
◉ Liquidity Preferance Theory.
Answer: The theory that investors demand a risk premium on long-
term bonds.
◉ Liquidity Premium.
Answer: The extra expected return demanded by investors as
compensation for the greater risk of longer-term bonds.
◉ Premium Bonds.
Answer: Bonds selling above par value.
◉ Put Bond.
Answer: A bond that the holder may choose either to exchange for
par value at some date or to extend for a given number of years.
◉ Realized Compound Return.
Answer: Compound rate of return on a bond with all coupons
reinvested until maturity.
◉ Reinvestment Rate Risk.
, Answer: Uncertainty surrounding the cumulative future value of
reinvested bond coupon payments.
◉ Sinking Fund.
Answer: A bond indenture that calls for the issuer to periodically
repurchase some proportion of the outstanding bonds prior to to
maturity.
◉ Speculative Grade Bond (Junk Bond).
Answer: A bond rated BB or lower by Standard and Poor's, Ba or
lower by Moody's, or unrated.
◉ Subordination Clauses.
Answer: Restrictions on additional borrowing that stipulate that
senior bondholders will be paid first in the event of bankruptcy.
◉ Term Structure of interest Rates.
Answer: The relationship between yields to maturity and terms to
maturity across bonds.
◉ Yield Curve.
Answer: A graph of yield to maturity as a function of term to
maturity.
