Bonds and Mutual Funds

 A bond is a certificate representing a promise to pay a definite amount of money at a stated interest rate on a specified due date.  The maturity date is the due date.  A creditor is someone who lends money.

Government Bonds  Municipal Bonds  U.S. Savings Bonds  Other Federal Securities

Municipal Bonds -Usually issued by a local government to do projects such as building roads.  Usually tax free (state and federal)  Low interest rate  Very Safe.

U.S. Savings Bonds  EE savings bonds range from $50-$10,000  You buy them for half the price and at the end you receive the full value (i.e. pay $25 get $50 at the end date).  The difference between the price paid and the finial value is the interest.  The process is also called discounting.  Low risk.

U.S. Savings Bond  HH Savings bonds.  Come in values of $500-$10,000  Are not discounted  Pay a fixed interest rate  With HH interest is paid twice a year  With EE it is only paid when cashed in at the end.  I Bond  Lower interest rate  Varies with the rate of inflation

Other Federal Securities  Treasury Bills (T-Bills)- Government borrows money from the investor.  Short term maturity (91 days-1Year)  Treasury Notes (T-Notes)  Long term with maturity dates from 1-10 years  Treasury bonds (T-Bonds)  Were available before 2001  Maturity date years

Corporate Bonds - When you are lending a company money. - Bond Components - Face value (Maturity Value) - The amount being borrowed - Interest is paid twice a year - At maturity date the face value is paid back. - Bond Values - Bonds are sold in $1,000 denominations - A bond selling at 100 is $1,000, 105 is $1,050

Mutual funds  Investment fund set up and managed by companies that receive money from several investors. The company buys several stocks and bonds.  Several types of mutual funds investments (p.g. 494)  Net asset value Worth of the investment divided by the number of shares.