Aim: Why should/shouldn’t you invest in bonds?

Investing in Bonds Bonds are loans you make to corporations or governments (bond issuers). In return they pay you interest.

I. How Do Bonds Work?

II. Bond Terminology Par or Face value: The original loan Maturity: When it comes due Coupon Rate: The interest rate (coupon v. zero coupon) Yield: how much you make

III. Bond Ratings Standard & Poors & Moody’s evaluate bonds. Based on financial stability of the issuer

IV. Types of Bonds Junk Bonds Corporate or municipal bonds with low ratings High risk =

US Savings - Easy to purchase Inexpensive Can’t be traded

1. US Treasury Notes, Bills & Bonds Short term, medium term & long term loans to the government. They are generally considered as good as gold. Backed by the full faith and credit of the government. Sold in $1000 units

2. Municipal Bonds Millions of bonds have been issued by state and local governments. Tax exempt Pay lower interest than comparably rated corporate and US Treasury bonds

3. Corporate Bonds Major source of corporate borrowing. Higher yield than government bonds

“Borrowing is not much better than begging, just as lending with interest is not much better than stealing.”