all about bonds. what are they? corporate bond a corporation’s written pledge to repay a specific...
TRANSCRIPT
All About BONDS
What are they?
CORPORATE BOND• a corporation’s
written pledge to repay a specific amount of money, along with interest.
GOVERNMENT BOND• written pledge of a
government or municipality (city) to repay a specific sum of money with interest
BOND BASICS3-5% Return Over Time
SHORT TERM <10 years
LONG TERM 10-30 years
GOVERNMENTSafest, federal gov. isn’t going
anywhere, lowest return
MUNICIPLE Pretty safe, includes local and state governments
CORPORATELonger term usually has a better
return than shorter term, but you are betting the co. will still be around
HIGH YIELD (JUNK) Highest rate of return, but the riskiest of all the bonds
CORPORATE BONDS• Legal document that details all the
conditions of the bondBond Indenture• When a bond will be repaid
(usually 1-30 years)Maturity Date
• Dollar amount bondholder will receive @ maturity. Corp bonds usually have a face value of $1000
Face Value
• Allows a company to buy back bonds before they mature. Usually the company pays a fee to the holder if they do this
Call Feature
• Interest rateCoupon
How BONDS Work:
1. You pay $1,000 for a 15 year AT&T Bond at 7.5% interest/year.
2. Each year, you get $75 (1000*.075)
3. After 15 years, you get your $1000 back
TOTAL EARNED = $75*15 years = $1125
GOVERNMENT BONDSTR
EASU
RY B
ILLS
(T-B
ILLS
) • Sold in units of $1000
• Mature in weeks (4, 13, 26, 52)
• “Discounted Security” – you pay LESS than the face value
TREA
SURY
NO
TES • Sold in units of $1000
• Mature in 10 years
• Higher rate than a T-Bill
US
SAVI
NG
S BO
ND
S • Purchase price is ½ Face Value ($100 Bond costs $50)
• Can redeem anytime from 6m to 30y (get what you paid + interest)
• Not taxed by state, but must pay FED taxes when you cash it in
What Does a Savings Bond Look Like?
How to buy government bonds, or look up your bond info:
• www.savingsbonds.gov