Exam_4_study_guide - AHRM 2304: Family Financial Management...

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AHRM 2304: Family Financial Management Review Sheet for Exam 4 Chapter 14: Bonds General characteristics of Treasury, municipal and corporate bonds (e.g., risk, tax implications, purchasing) What is the difference in revenue and general obligation municipal bonds? General Obligation Backed by the full faith and credit of the issuer. Taxes used to pay back principal and interest. Example: School district builds new school, taxes used to pay back the lenders. Revenue Bonds Derive funds to pay interest and repay principal from a designated project. Example: Bond finances a new toll road, revenue from tolls pay back lenders. How are risk and return related for bonds? The riskier the bond, the higher the interest rate it will have. What factors affect the pricing of bonds? (I.E., selling at par, premium, discount) As the available rate of return increases, the value of a lower rated bond decreases and an investor would pay a discount . As the available rate of return drops, the value of a higher rated bond increases and an investor would pay a premium . Advantages and disadvantages of including bonds in a portfolio? Advantages If interest rates drop, bond prices will rise. Bonds reduce risk through diversification. Bonds produce steady current income. Bonds can be a safe investment if held to maturity. Disadvantages If interest rates rise, bond prices will fall. If the issuer experiences financial problems, the bondholder may lose. If interest rates drop, rather than experiencing price appreciation, the bond may be called. Chapter 15: Mutual Funds (refer to the chapter outline handout for general study) Categories of mutual funds…what are the characteristics or objective? Risk? Money Market Mutual Funds (MMMFs) Invest in short-term securities with maturities of less than 30 days Trade at a constant net asset value of $1 per share
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Stock Mutual Funds Aggressive growth funds – maximize capital appreciation while ignoring income; wider price swings than other funds. Small-company growth funds
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This test prep was uploaded on 04/09/2008 for the course AAEC 2104 taught by Professor Rhlytton during the Fall '06 term at Virginia Tech.

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Exam_4_study_guide - AHRM 2304: Family Financial Management...

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