GOALS BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 1 7.4Buying Bonds Calculate the market price of bonds Calculate the total investment in bonds.

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Presentation transcript:

GOALS BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 1 7.4Buying Bonds Calculate the market price of bonds Calculate the total investment in bonds

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 2 Bonds Bonds are a form of long-term promissory note. Bonds are a written promise to repay the money loaned on the due date. Bondholders, or the people who own the bonds, may keep them until the due date or sell them to other investors.

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 3 Face Value Bonds are usually issued with a face, or par value of $1,000. Bonds may also be issued with other par values, such as $500, $5,000, or $10,000. Par value is the amount of money that the issuer, or the organization that sells the bonds, agrees to pay the bondholder on the due date.

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 4 Bond Certificate

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 5 Market Value The market value of a bond is its selling price and may be different from par value. If the market value is more than par value, the bond is selling at a premium. If the market value is less than the par value, the bond is selling at a discount. The amount of the premium or discount is the difference between the market value and the par value.

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 6 Buying and Selling Bonds Bonds are usually bought and sold through a broker, who is a dealer in stocks and bonds.

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 7 Full Service Brokers Full service brokers provide advice on what and when to buy and sell. They charge a broker’s commission or brokerage fee but the commission is usually included as part of the price the buyer pays for a bond and not shown separately.

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 8 Discount and Online Brokers Discount and online brokers usually offer less financial help but also charge less commission. They usually show their commission rates on their web sites.

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 9 Total Investment in Bonds To find the total investment in bonds, you must find the market price of one bond, add the commission if it is known, and multiply by the number of bonds bought. Total Bond Investment = (Market Price + Commission) × Number of Bonds

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 10 To get the market price you just take the par value and multiply it by the Quoted Price – but remember the quoted price is a % so change it to a decimal

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 11 1) $1000 * = $ $ $ $ ) $1000 * = $ ) $500 * = $528.39

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 12

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 13

BUSINESS MATH© Thomson/South-WesternLesson 7.4Slide 14

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