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Unformatted text preview: ime to maturity.
Although called by different names, all are
bonds. Treasury bills mature in 13, 26, or 52
weeks. Treasury notes mature in 2 to 10
years, and Treasury bonds mature in 10 to 30
years. Treasury bills, notes, and bonds are
considered safe investments because it is
unlikely that the federal government will
default on its bond obligations. After all, the
federal government has the power to tax to
pay off bondholders.
Inflation-Indexed Treasury Bonds In 1997,
the federal government began to issue inflation-indexed bonds. The first indexed
bonds issued matured in 10 years and were
available at face values as small as $1,000.
The difference between an inflationindexed Treasury bond and a Treasury bond
that is not indexed is that an inflationindexed Treasury bond guarantees the
purchaser a certain real rate of return, but
a nonindexed Treasury bond does not.
For example, suppose you purchase an
inflation-indexed, 10-year, $1,000 bond that
pays 4 percent coupon rate. If no inflation
occurs, the annual interest payment will be
$40. On the other hand, if the inflation rate
is, say, 3 percent, the government will “mark
up” the value of the bond by 3 percent—
from $1,000 to $1,030. Then it will pay 4
percent on this higher dollar amount. So
instead of paying $40 each year, it pays
$41.20. By increasing the monetary value of
the security by the rate of inflation, the government guarantees the bondholder a real
return of 4 percent. 16 (428-459) EMC Chap 16 11/18/05 9:34 AM Page 447 How to Read the Bond
If you turn to the bond market page of
the newspaper, you can find information
about the different types of bonds. If you
want to invest in bonds, you will need to
know how to read the information that
relates to both corporate bonds and
Treasury bonds. First let’s look at corporate
bonds. Corporate Bonds
Not all publications will present corporate bond information in exactly the same
format. The format we show you here is
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This document was uploaded on 01/16/2014.
- Winter '14