Chp. 8 - Savings, Investment, and the Financial System

Chp. 8 - Savings, Investment, and the Financial System -...

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A person wanting to save money will loan money directly to a company A bond is an IOU for a set amount of money at a specified future date. Bonds usually pay higher interest rates the longer the term in order to compensate the holder of the bond for the additional time they are sacrificing the use of the funds. • A bond represents a direct relationship between savers and investors • Credit Risk is the possibility that a company will default on a bond, meaning it isn't able to repay the owners of the bond. Stockholders determine the value of a corporations shares • Stocks represent a claim to partial ownership of a company. Issued by state and local governments s The interest rate on municipal bonds is therefore lower than interest rates on bonds without including tax advantages. Municipal bondholders receive more of their after-tax return than corporate or federal government bondholders. Municipal Bonds
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This note was uploaded on 04/07/2008 for the course ECON 252 taught by Professor Robertholand during the Fall '08 term at Purdue University-West Lafayette.

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Chp. 8 - Savings, Investment, and the Financial System -...

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