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Bonds_2.10.key - Bonds Chapter 14 in text Types Treasuries...

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Bonds - Chapter 14 in text • Types – Treasuries Fed agencies – Municipals (state or local) – Corporate Risk and Ratings Special Characteristics Why bonds? Bond mistakes So what is so complex? Two ways to make money... 1. Earn it .... Wages interest dividends capital gains 2. Loan it .... BONDS Terms • Purchase: • Interest: Due Date: Before Due Date: Savings Bonds EE I Purchase Interest Tax Notes: (more info @ savingsbond.gov) Bonds Type: Length of Time • Treasuries – Bill – Note – Bond – Agency • Municipals • Corporate Time Length Tax treatment A. Reward! $1,000 @ 5.2% = $52. B. RISK…. 1. Taxes $52. X .15 = $7.80 ~ $8.00 2. Inflation $1,000 x .03 = $30. $52.00 - $38.00 = $14.00
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Risk Yield Low ___________________________High Bond Ratings • Moody’s Aaa Aa A Baa Ba Standard and Poors AAA AA A BBB BB B Cumulative Default Rates by Rating Categories (1970 - 2001) 0 20 40 60 80 Aaa Aa A Baa Ba B Caa - C Year 5 I Clicker Which bond holds the most risk for the investor?
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