What is the function of a trustee as related to the bond indenture?
A bond trustee is hired by a bond issuer and oversees the implementation of a bond or trust indenture, which is a contract between a bond issuer and a bondholder. The trustee has a fiduciary responsibility to act on behalf of the issuer, rather than in its own interests.
Who is involved in a bond indenture?
Definition: A bond indenture is a legal document or contract between the bond issuer and the bondholder that records the obligations of the bond issuer and benefits owed to the bondholder.
What is the purpose of a bond indenture?
An indenture is a legal and binding contract usually associated with bond agreements, real estate, or bankruptcy. An indenture provides detailed information on terms, clauses, and covenants.
What does a bond indenture contain?
A bond indenture is the contract associated with a bond. The terms of a bond indenture include a description of the bond features, restrictions placed on the issuer, and the actions that will be triggered if the issuer fails to make timely payments.
Who is responsible for holding the legal contract for a bond indenture?
The trustee is a bank or financial institution that holds the bond indenture. Trustee roles are primarily providing financial and legal assistance to bondholders.
What is an indenture trustee?
What Is a Trust Indenture? A trust indenture is an agreement in a bond contract made between a bond issuer and a trustee that represents the bondholder’s interests by highlighting the rules and responsibilities that each party must adhere to. It may also indicate where the income stream for the bond is derived from.
Which of the following correctly describes a bond indenture?
Which of the following correctly describes a bond indenture? The portfolio of bonds that are issued during a particular fiscal period. A document detailing the promises made by the bond issuer.
What is the difference between a bond agreement and a bond indenture?
Bond agreements are typically issued by smaller companies. Bond agreements may be eligible for exemption from SEC registration requirements, which could present slightly more risk to you as an investor, without having the contractual agreement a bond indenture provides.
What is the difference between a bond indenture and a bond certificate?
is that indenture is (legal) a document, written as duplicates separated by indentations, specifying such a contract while bond is (legal) evidence of a long-term debt, by which the bond issuer (the borrower) is obliged to pay interest when due, and repay the principal at maturity, as specified on the face of the bond …
Which statements are true about trustees performing their duties under the Trust Indenture Act of 1939?
Which statements are TRUE about trustees performing their duties under the Trust Indenture Act of 1939? I and IV (Under the requirements of the Trust Indenture Act of 1939, trustees are appointed by the issuer (who pays the trustee); however, the trustee is appointed to protect the interests of the bondholders.)
Which of the following are appointed as trustees under the Trust Indenture Act of 1939?
Which of the following are appointed as trustees under the Trust Indenture Act of 1939? A banks or a trust company is appointed as trustee. The trustee for bondholders is a fiduciary who is appointed and paid for by the issuer.
Who is the bond trustee?
A bond trustee is hired by a bond issuer and oversees the implementation of a bond or trust indenture, which is a contract between a bond issuer and a bondholder. The trustee has a fiduciary responsibility to act on behalf of the issuer, rather than in its own interests.
What is the key factor that determines which CMO tranches receive principal payments from mortgages?
What is the key factor that determines which CMO tranches receive principal payments from mortgages? Principal payments and pre-payment are paid in order of the tranche’s maturity date. Early maturities are paid first and then later maturities.
Is a CMO a pass-through security?
A CMO is a type of mortgage-backed security (MBS) with separate pools of pass-through security mortgages that contain varying classes of holders and maturities (tranches).
How does a CMO work?
A collateralized mortgage obligation (CMO) refers to a type of mortgage-backed security that contains a pool of mortgages bundled together and sold as an investment. Organized by maturity and level of risk, CMOs receive cash flows as borrowers repay the mortgages that act as collateral on these securities.
How is a CMO different from other mortgage-backed securities?
A collateralized mortgage obligation, or CMO, is a type of MBS in which mortgages are bundled together and sold as one investment, ordered by maturity and level of risk. A mortgage-backed security, or an MBS, is a kind of asset-backed security that represents the amount of interest in a pool of mortgage loans.
What is a CMO tranche?
A sequential pay collateralized mortgage obligation (CMO) is a pooled debt instrument where the tranches are amortized in order of seniority. In a sequential pay CMO, each tranche receives interest payments as long as the tranche’s principal amount has not been completely paid off.
What is a characteristic of a CMO that makes it different from an asset-backed security?
Due to the structure of a CMO, a fluctuating amount of principal is returned monthly, not at maturity, which makes CMOs different from most other fixed-income securities.