21 Bonds - Prentice-Hall, Inc. What are bonds? Chapter 14...

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Prentice-Hall, Inc. 1 Chapter 14 Investing in bonds and other investments What are bonds? • Similar to an I.O.U. When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity known as the issuer. • The issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it “matures,” or comes due. Why Consider Bonds? • Bonds reduce risk through _____________. • Bonds produce ____________ income. • Bonds can be a safe investment if held to maturity. • ____________ (face value) -- the amount returned to the holder at maturity • _______________ -- indicates the percentage of the face value that will be paid annually to the holder in the form of interest • _____________ -- a document that outlines the terms of the loan agreement Basic Bond Terminology and Features Basic Bond Terminology and Features • ________________ -- allows the issuer to repurchase the bonds before the maturity date • _______________ -- money set aside annually to pay off the bonds at maturity Bond investment considerations • Interest rate: – Fixed, floating or payable at maturity • Redemption features – Call provisions (when % rates drop) – Puts—you make issuer buy back bond (when % rates increase) • Tax status – Interest may or may not be taxable
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Prentice-Hall, Inc. 2 Different Types of Bonds • Corporate bonds • Treasury and agency bonds • Municipal bonds • http://www.google.com Corporate Bonds • Corporations __________ $$ by issuing bonds • Secured corporate debts are secured by collateral or real property liens • Unsecured corporate debts are not secured by collateral, and pay a higher return Treasury and Agency Bonds • _______bonds (US treasury) – Bills, notes, and bonds – Treasury inflation-indexed bonds • ______________ bonds (US treasury) – U.S. Series EE bonds – I bonds • ______________ bonds – Pass-through certificates (mortgages) Treasury Bills, Bonds • Bills mature in 3, 6, or 12 months • Bonds mature in 10 to 30 years • All are sold in denominations of
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This note was uploaded on 06/06/2011 for the course HACE 3200 taught by Professor B during the Spring '09 term at University of Georgia Athens.

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21 Bonds - Prentice-Hall, Inc. What are bonds? Chapter 14...

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