All About BONDS

What are they? CORPORATE BOND a corporation’s written pledge to repay a specific amount of money, along with interest. GOVERNMENT BOND written pledge of a government or municipality (city) to repay a specific sum of money with interest

BOND BASICS 3-5% Return Over Time SHORT TERM <10 years LONG TERM years GOVERNMENT Safest, federal gov. isn’t going anywhere, lowest return MUNICIPLE Pretty safe, includes local and state governments CORPORATE Longer term usually has a better return than shorter term, but you are betting the co. will still be around HIGH YIELD (JUNK) Highest rate of return, but the riskiest of all the bonds

CORPORATE BONDS Legal document that details all the conditions of the bond Bond Indenture When a bond will be repaid (usually 1-30 years) Maturity Date Dollar amount bondholder will maturity. Corp bonds usually have a face value of $1000 Face Value Allows a company to buy back bonds before they mature. Usually the company pays a fee to the holder if they do this Call Feature Interest rate Coupon

How BONDS Work: 1.You pay $1,000 for a 15 year AT&T Bond at 7.5% interest/year. 2.Each year, you get $75 (1000*.075) 3.After 15 years, you get your $1000 back TOTAL EARNED = $75*15 years = $1125

GOVERNMENT BONDS TREASURY BILLS (T-BILLS) Sold in units of $1000 Mature in weeks (4, 13, 26, 52) “Discounted Security” – you pay LESS than the face value TREASURY NOTES Sold in units of $1000 Mature in 10 years Higher rate than a T-Bill US SAVINGS BONDS Purchase price is ½ Face Value ($100 Bond costs $50) Can redeem anytime from 6m to 30y (get what you paid + interest) Not taxed by state, but must pay FED taxes when you cash it in

What Does a Savings Bond Look Like?

How to buy government bonds, or look up your bond info: