Warm Up Why do you think it is important to have a diverse collection of stocks when investing in the stock market?

Monday, March 28, 2016 Objective: Students will be able to assess ways to be a wise investor when purchasing bonds. Purpose: Knowing how to make smart investments can save you a lot of money.

What are Bonds? Bonds: certificates sold by a company or government They go to finance projects or expansion of the business Bonds are basically loans or IOUs that represent debt that the government or a corporation must repay to an investor Bonds usually have a fixed interest rate for a fixed period of time Bonds are generally low-risk investments and usually pay off

Components of Bonds Coupon Rate: the interest rate that the bond issuer will pay to the bondholder Maturity: the time at which payment to a bondholder is due. Some bonds have a maturity of 10, 20 or 30 years. Par Value: the amount that an investor pays to purchase a bond and that will be repaid to the investor at maturity.

Characteristics of Bonds Advantages Once the bond is sold, the coupon rate for that bond will not go up or down. Unlike stockholders, bondholders do not own part of the company. Companies do not have to share their profits with bondholders. Disadvantages for the issuer The company must make fixed interest payments, even in bad years when it does not make money. If the firm does not maintain financial health, its bonds may be downgraded to a lower bond rating.

Bond Ratings

Bond Ratings An investment-grade bond is considered safe enough for banks to invest in The lowest grade generally means that the bond is in default—that is, the issuer has not kept up with interest payments or has defaulted on paying principal The lower a bond’s rating is, the harder it will be to sell The higher the bond rating, the lower the interest rate the company usually has to pay to get people to buy its bonds

Other Bonds Corporate Bond: a bond issued by a corporation to help raise money for expansion generally issued in denominations of $1,000 or $5,000 have moderate levels of risk Municipal Bond: a bond issued by a state or local government or a municipality to finance a public project

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