LAP QS033 Objectives Describe the purpose of bonds

LAP: QS-033

Objectives Describe the purpose of bonds. Explain how to buy and sell bonds.

Objective Describe the purpose of bonds.

Bonds and Lending Corporations and governing bodies ask people to lend them cash when they issue bonds.

Bonds and Issuers Bond = a loan to a governing body or corporation The money is borrowed: • at a particular interest rate • for a particular period of time Issuer = the borrower

Types of Bonds Government: • Savings bonds (non-marketable) • Treasury bonds (marketable) • Municipal bonds (marketable) • Corporate (marketable)

Bonds and the Stock Market • Bonds have an inverse relationship to the stock market. • When the stock market goes up, bond prices go down.

Characteristics of Bonds (How to know what a bond will pay you) • Coupon rate = interest rate • Maturity date = day of repayment • Face value (par value) = original investment Due May 18, 2008 $1000

Objective Explain how to buy and sell bonds.

Pros and Cons Benefits: • Providing reliability • Meeting goals • Doing well in a poor economy

Pros and Cons Drawbacks/Risks: • Interest-rate • Liquidity • Repayment • Default

Will the Corporation Default? Source: Investopedia. com Bond rating = a company’s “letter score” based on its financial responsibility

Bond Table You can find a bond table in an investment newspaper. Categories: • Issuer = borrower • Coupon = interest rate • Maturity date = day of repayment • Bid price = what others are willing to pay for the bond • Yield = what the bond will bring you over time at a particular bid price

Help Me Invest! • Diane is preparing for retirement. • She wants to put her money into reliable bonds. • What would you recommend? Quick Case

Mark. ED Acknowledgments Original Developers Christopher C. Burke, Mary C. Hollaway, Mark. ED Version

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