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IBBC CAPITAL ACADEMY / 2027

Bond contracts and protective promises

Independent IBBC Capital draft content for self-study. Not affiliated with or endorsed by CFA Institute. New lessons await subject-matter review. No CFA designation or official PSM credit is awarded.

Learning goals

  • Explain identify the security using mechanisms and limitations.
  • Explain read the indenture using mechanisms and limitations.
  • Explain measure promised cash using mechanisms and limitations.

Draft · approximately 25 minutes, excluding further revision.

Identify the security

A bond specifies issuer, face amount, maturity, currency and payment rules; a fixed coupon is a contractual promise subject to credit risk.

Coupon rate determines interest relative to face value, whereas market yield reflects the price paid and all expected contractual cash flows.

Read the indenture

An indenture describes covenants, collateral, seniority and remedies; the security label alone cannot establish recovery or lender protection.

Affirmative covenants require actions such as reporting; negative covenants restrict actions such as additional borrowing or asset disposals, subject to defined exceptions.

Measure promised cash

Secured debt has claims on specified collateral but collateral values and enforceability can deteriorate; security does not guarantee full repayment.

Cross-default and acceleration provisions can affect the timing of claims; assess their actual wording and applicable law rather than assuming uniform treatment.

Formula and assumptions

Coupon payment=face×annual coupon rate/payments per year

Original applied case: Bond contracts and protective promises

  1. Face value 1,000, annual coupon rate 6%, two equal payments per year.
  2. Annual promised coupon is 60; each semiannual payment is 30.
  3. Repayment still depends on the issuer and contractual priority; this calculation is not a credit guarantee.

Errors to catch

  • Do not assume: Coupon rate is always the current market yield.
  • Do not assume: Face value is always the price investors pay.
  • Do not assume: An indenture has no effect on creditor protection.

Original knowledge check

Answer every question before checking. Review explanations after submitting; retry starts a new attempt.

Sources and coverage status

These original lessons are drafts. Public outlines are used to check scope; the official learning-outcome text and proprietary question banks are not reproduced here. Follow the source for exam-year requirements and updates.