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Unformatted text preview: t is possible to learn
enough about investments to protect yourself from the financial
uncertainties of the future, but not
spend so much time worrying about
the future that you don’t enjoy the
ABOUT IT Sometimes people
choose not to learn
about various investments because
they think what they need to learn
is too difficult to understand. A person might say, “Learning about
stocks and bonds, and put options,
and other such things is just beyond
me.” What do you think? Section 2 Bonds 445 16 (428-459) EMC Chap 16 11/18/05 9:34 AM Page 446 coupon rate in such a way that it can
attract people to its bonds. If people are
earning, say, 5 percent, on their savings
account, they will not lend money to the
company unless the company pays a
coupon rate of at least 5 percent. In
short, the coupon rate is set at a competitive level and not at just any level the
company wants to set it. Types of Bonds
As stated earlier, bonds are typically
issued by companies, governments, and government agencies. This section briefly
describes some of the many types of bonds
that these entities issue.
Corporate Bonds A corporate bond is issued
by a private corporation. It is typical to find
a corporate bond with a $10,000 face value.
Corporate bonds may sell for a price above
or below face value depending on current
supply and demand conditions for the bond. If one of these traders was buying bonds for you, what information do you think he would need to have about the bonds
being considered for purchase? 446 Chapter 16 Stocks and Bonds The interest that corporate bonds pay is fully
Municipal Bonds Municipal bonds are issued
by state and local governments. States may
issue bonds to help pay for a new highway.
Local governments may issue bonds to
finance a civic auditorium or a sports stadium. Many people purchase municipal
bonds because the interest paid on the
bonds is not subject to federal taxes.
Treasury Bills, Notes, and Bonds When the
federal government wants to borrow funds,
it can issue Treasury bills (T-bills), notes, or
bonds. The only difference between bills,
notes, and bonds is their t...
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This document was uploaded on 01/16/2014.
- Winter '14