BONDS MK, U 16 (p 81)

What? Who? Why? borrowing/lending: Bond issuers - issue bonds and borrow money bondholders lend money (invest) and get paid the principal - the original investment is back on a fixed date – maturity day coupon (interest rate) – bondholders receive interest payments at regular intervals bond issuers governments (government bonds) – if revenue is not sufficient companies (corporate bonds) – to raise money for the future growth bondholders -individuals & institutional investors -selling or holding bonds until maturity

Debt Finance vs. Equity Finance (MK, p.81) BONDS FOR INVESTORS FOR ISSUERS ADVANTAGE DISADVANTAGE

Comprehension & vocabulary, MK p 82 1 F 2 T 3 T 4 F 5 T 6 F 7 F 8 F 1 cash flow 2 equity 3 mutual funds 4 pension funds 5 principal 6 maturity 7 coupon 8 insolvent or bankrupt 9 creditors 10 dividends 11 market makers 12 bid / bid price 13 offer / offer price 14 yield

Match up verbs with nouns borrow money deduct interest payments finance activities issue shares issue bonds pay (a rate of) interest pay a (higher) return pay dividends pay tax receive interest payments raise money repay principal sell assets deduct tax receive dividends repay bonds repay money sell bonds

Introduction to Bonds (video) WATCH: http://www. investopedia Definition of bonds? Term used for the price of a bond on the primary market? Maturities mentioned? Coupons mentioned? Why do corporations/governments issue bonds? What is important to remember about bonds?

What is a bond? A d____ instrument issued by governments, corporations and other entities in order to finance projects or activities. A l____ that investors make to the bond’s i______. Term used for the price of a bond on primary market? F____ value. What is the face value of a bond? The amount l_____ to the issuer. What does the investor receive in exchange for the loan? Interest, known as c______.

What is maturity? The time when a financial instrument (such as a bond or an insurance policy) becomes ready to be p_____. Bonds are issued for a specified period of time. Maturities mentioned? 1 year, 3 years or 30 years Coupons menioned? 8% Why do corporations/govts. issue bonds? To fund capital projects / public projects

The higher the interest rate, the m______ risk it is likely to carry. What is important to remember about bonds? The higher the interest rate, the m______ risk it is likely to carry.

STOCKS VS. BONDS, cont. Bonds are considered to be less ______ for two reasons: 1. Dividends can be paid to ___________ only after the interest rates due to bondholders have been paid. This means that bondholders have a _____ _____ _____. 2. If the corporation runs into problems, stockholders may receive no ________ and the value of their stock may ___________________. Unless the corporation goes bankrupt, bondholders are guaranteed a fixed interest rate and the return of the _______ at _______.

DIFFERENCE BETWEEN BONDS & SHARES lender less risky (get their money back) pay fixed rate of interest (regular intervals) maturity date (principal) tax deductable (interest payments before paying tax) SHARES (STOCKS) owner uncertain investment (depends on profit) pay dividends on a profit (may be higher return) no maturity date dividends paid out of already taxed profits

MATCH UP THE VERBS WITH THE NOUNS TO MAKE COMMON VERB-NOUN COMBINATIONS: borrow ___________ a) activities deduct ___________ b) assets/bonds finance ___________ c) interest/dividends/tax issue _______________ d) principal pay _________________ e) money raise ________________ f) shares/bonds repay _______________ g) money sell _________________ h) interest payment/tax receive ______________ i) a return