Bonds and Other Financial Instruments

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Presentation transcript:

Bonds and Other Financial Instruments Unit 11.14

Bonds Bonds are formal IOUs (I Owe You), promises to repay borrowed money with interest. Par Value: the amount the issuer promises to pay on maturity. Maturity: date the bond is repaid. Coupon Rate: Interest rate Yield: Annual rate of return

Types of Bonds Treasuries: US Government Bonds Bonds: 10 years or more Notes: 2 to 10 years Bills: 1 year or less Municipal Bonds: local government Corporate Bonds Bond Ratings AAA: highest rating, lowest risk BBB: Medium risk Bb or lower: Junk Bond

Other Financial Instruments Certificates of Deposit (CD) Long term savings deposit, higher return than standard savings Money Market Mutual Funds Or Mutual Funds, groups of investors getting together for the purpose of diversifying a portfolio. Derivative Derives is value from performance of underlying entity (asset, index, interest rates) An insurance type bet or hedge that can be used for virtually anything (housing prices up or down, oil prices, gold prices, Fed interest rate changes, etc…)