BONDS Savings and Investing.

Slides:



Advertisements
Similar presentations
1 (of 23) FIN 200: Personal Finance Topic 19–Bonds Lawrence Schrenk, Instructor.
Advertisements

Unit 5 Microeconomics: Money and Finance Chapters 11.2 Economics Mr. Biggs.
Introduction to Bond Markets
©CourseCollege.com 1 18 In depth: Bonds Bonds are a common form of debt financing for publicly traded corporations Learning Objectives 1.Explain market.
11-1. McGraw-Hill/Irwin Focus on Personal Finance, 2e Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. 11 Investment Basics and.
Chapter © 2010 South-Western, Cengage Learning Investing in Bonds Evaluating Bonds Buying and Selling Bonds 13.
 2004 McGraw-Hill Ryerson Ltd. Kapoor Dlabay Hughes Ahmad Prepared by Cyndi Hornby, Fanshawe College Chapter 12 Investing in Bonds 12-1.
6-1 CHAPTER 4 Bonds and Their Valuation Key features of bonds Bond valuation Measuring yield Assessing risk.
Bonds & Mutual Funds Chapter 10.
1 Chapter 14 - Bonds A promise to repay a sum of money on a fixed date, together with interest, usually over the life of the loan Why buy bonds? –Steady.
11B Investing Basics and Evaluating Bonds #2
BONDS Savings and Investing. Characteristics of Bonds Bonds are debt instruments offered by the federal, state or local government and corporations Bonds.
Chapter 15 Investing in Bonds
An Introduction to Bonds Tina Horvath. What is a Bond? w Debt instrument: When one purchases a bond, one essentially lends an organization such as the.
Chapter © 2010 South-Western, Cengage Learning Investing in Bonds Evaluating Bonds Buying and Selling Bonds 13.
Chapter 13 Investing in Bonds
Chapter 9 Investing in Long-Term Debt (Bonds). Characteristics of All Bonds Interest - coupon rate Principal amount Maturity date.
Chapter 15 Investing in Bonds Video Clip Chapter 15 Bonds 15-1.
Chapter 7 Bonds and their valuation
Intro to Financial Management
1 Bonds (Debt) Characteristics and Valuation What is debt? What are bond ratings? How are bond prices determined? How are bond yields determined? What.
Bonds and other financial assets
©2009, The McGraw-Hill Companies, All Rights Reserved 6-1 McGraw-Hill/Irwin Chapter Six Bond Markets.
Dr. Steven M. Hays BKHS Personal Finance.  Corporation’s written pledge to repay a specified amount of money with interest.  The face value is the dollar.
11-1. McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 11 Investment Basics and Evaluating Bonds.
McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Objective 1: Explain why you should establish an investment program.
Chapter 15 Investing in Bonds Chapter 15 Investing in Bonds.
Chapter 15 Investing in Bonds McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
“Gentlemen prefer bonds.” -Andrew Mellon. Learning objective: Understand what bonds are. Know the pros and cons of bonds. Know the types of bonds.
6-1 Lecture 6: Valuing Bonds A bond is a debt instrument issued by governments or corporations to raise money The successful investor must be able to:
Financial Markets Investing: Chapter 11.
Definition of a Bond n A bond is a security that obligates the issuer to make specified interest and principal payments to the holder on specified dates.
Buying and Selling Bonds Lesson Purchasing bonds through the Federal Reserve You can buy savings bonds and Treasury securities through the FED The.
Today’s Schedule – 11/12 Calculating Compound Interest PPT: Saving & Investing Part2 HW: – Read 21.2.
Investing in Bonds McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved
Personal Finance Chapter 13
Bonds and Their Valuation
The Corporate and Government Bond Markets Chapter 10 © 2003 South-Western/Thomson Learning.
Chapter © 2010 South-Western, Cengage Learning Investing in Bonds Evaluating Bonds 13.
Financial Markets Chapter 11 Section 2 Bonds and Other Financial Assets.
Chapter © 2010 South-Western, Cengage Learning Investing in Bonds Evaluating Bonds Buying and Selling Bonds 13.
Financial Planning Government Bonds Corporate Bonds Bonds.
W!se Unit 5 Investing. What is Investing?  Putting money to work earning more money for the future.
Chapter 15 Investing in Bonds 15-1
MYPF 18.1 Evaluating Bonds 18.2 Buying and Selling Bonds
Key Concepts A bond is a contract by a corporation or the government promising to repay borrowed money, plus interest, on a fixed schedule. The amount.
Julie CHAM ITEC/FIC/TTS/ECN BONDS & FLOATERS.
Chapter Fourteen Bond Prices and Yields
Personal Finance Bonds
BONDS Both governments and corporations can raise money for investment(financing projects/expansion) by issuing (selling) bonds → for example, during WWII.
Bond fundamentals Chapter 17.
Bonds and Their Valuation
Chapter 6 Learning Objectives
Financial Assets and Their Markets
CHAPTER 7: Bonds and Their Valuation
Introduction to Bonds Finance Academy.
Chapter 9 Debt Valuation
Investing in Bonds.
Bond Valuation Chapter 6.
Investing in Bonds.
Investing in Bonds.
Investing in Bonds.
Investing in Bonds.
MYPF Bonds are ? that must be repaid at maturity.
Chapter 6 The Risk Structure and Term Structure of Interest Rates
Financing and Investing
Bonds, Economic Bonds..
Warm Up Why do you think it is important to have a diverse collection of stocks when investing in the stock market?
Thursday, March 23, 2017 Objective: Students will be able to assess ways to be a wise investor when purchasing bonds. Purpose: Knowing how to make smart.
PREPARED BY:  BUH DESMOND  NKESI KEVIN KONGNYU (18CMBA18) ROME BUSINESS SCHOOL, CAMEROON BOND VALUATION.
Presentation transcript:

BONDS Savings and Investing

Characteristics of Bonds Bonds are debt instruments offered by the federal, state or local government and corporations Bonds are loans that are repaid at maturity Most bonds mature in 10 years Face value is the amount the bondholder will be repaid at maturity AKA par value because that is the value printed on the certificate

Difference Between Stocks and Bonds The bond purchaser is loaning the company or government money If the bond issuer goes bankrupt, the bond holder is a creditor and will be repaid during liquidation A stock holder has no claim on the company assets and can lose their entire investment

Corporate Bonds Sold by corporations on the open market, like stocks Fixed income instruments – pay a specified amount of interest at regular intervals Usually twice per year Contract rate = interest rate (APR) Usually have a face value of at least $1,000 $5,000 is a common denomination

Corporate Bonds (cont’d) Coupon bonds (bearer bonds) require owner to clip the interest coupon and present it to a bank for payment. Registered bond – interest payments are mailed semiannually to registered owner Callable bond – issuer has the right to pay off (call back) prior to maturity date Corporations can take advantage of drop in interest rates Corporation usually pays a small premium when a bond is called

Types of Corporate Bonds Debenture – backed only by the general credit standing of the corporation Mortgage bond (secured bond) – specific assets serve as collateral to assure repayment of the debt Convertible bond – can be exchanged for a specific number of shares of common stock at a specific price (or higher)

Earnings on Corporate Bonds Since APR is fixed and there is no compounding return on bonds (yield) should equal APR Market price of bonds fluctuate, which effects yield If price is higher than purchase price, the bond is selling at a premium If price is lower than purchase price, the bond is selling at a discount

Yield Yield = Annual interest dollar amount/Market Price Yield < APR when bond is at a premium Yield > APR when bond is at a discount Price of a 6% $10,000 bond Yield Calculation Yield Face value $600/$10,000 6% Premium (104) $600/$10,400 5.8% Discount (96) $600/$9,600 6.3%

Municipal Bonds Munis have a minimum investment of $5,000 Revenue bond is issued to raise money for a specific public works project (airports, hospitals) Revenue from the project is used to pay the interest and repay the principal General obligation bond – backed by the power of the issuer to levy taxes Munis carry a lower interest rate than corporate bonds, but are exempt from federal and some state taxes

Other Types of Bonds Savings bonds and Treasury Bonds Low yield, tax free investment Considered risk free Agency bonds – debt securities issued by other Federal agencies Slightly higher yield than treasury securities Zero coupon bonds – sold at a deep discount, no interest payments, redeemable for face value at maturity (can be Corporate or Municipal)

Buying and Selling Bonds Full service and discount brokers Savings bonds and Treasury securities can be purchased through the Federal Reserve System or online through Treasury Direct Can purchase at a bank, but will pay a commission Payroll deduction option, but it is slow

Evaluating Bonds Considered a safe investment Fixed payment, debt obligation Earn return on bonds by earning interest, redeeming at face value, and through appreciation Bond prices are impacted by interest rates As interest rate rise, the value of bonds decrease Bond prices are listed in financial tables of newspapers and online

Bond Ratings Rating agencies include Moody’s and Standard & Poor’s Ratings reflect the relative risk level of the bond Highest rating is AAA or Triple A Lowest rating is D, which indicates default Investment-grade bonds have a minimun rating of Baa in Moody’s or BBB in S&P Junk bonds are highly risky Ba/BB or lower