Chapter 11.4 notes Bonds

Bonds long-term loans to gov’t or firms Pay a stated rate of interest for certain # of yrs. Rated from AAA to D – riskier bonds will be less expensive

Gov’t bonds called Treasuries – have different maturities They are loans to the gov’t – help finance the deficit Pay a small amount of interest Considered virtually risk free Interest earned is taxed

Municipal bonds Loans to local and state gov’ts interest earned is tax free Generally low-risk

Corporate Bonds Loans to corporations Usually pay more than gov’t bonds High risk – called junk bonds