A person might say learning about stocks and bonds

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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 present. THINK 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 taxable. 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.

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