1. BONDS
MK, U 16 (p 81)

2. What? Who? Why? borrowing/lending:
Bond issuers - issue bonds and borrow money
bondholders lend money (invest) and get paid the principal - the original investment is back on a fixed date – maturity day
coupon (interest rate) – bondholders receive interest payments at regular intervals
bond issuers
governments (government bonds) – if revenue is not sufficient
companies (corporate bonds) – to raise money for the future growth
bondholders
-individuals & institutional investors
-selling or holding bonds until maturity

3. Debt Finance vs. Equity Finance (MK, p.81)
BONDS
FOR INVESTORS
FOR ISSUERS
ADVANTAGE
DISADVANTAGE

4. Comprehension & vocabulary, MK p 82
1 F
2 T
3 T
4 F
5 T
6 F
7 F
8 F
1 cash flow equity
3 mutual funds 4 pension funds
5 principal 6 maturity
7 coupon 8 insolvent or bankrupt
9 creditors 10 dividends
11 market makers 12 bid / bid price
13 offer / offer price 14 yield

5. Match up verbs with nouns
borrow money deduct interest payments
finance activities issue shares
issue bonds pay (a rate of) interest
pay a (higher) return pay dividends
pay tax receive interest payments
raise money repay principal sell assets
deduct tax receive dividends repay bonds
repay money sell bonds

6. Introduction to Bonds (video) WATCH: http://www. investopedia
Definition of bonds?
Term used for the price of a bond on the primary market?
Maturities mentioned?
Coupons mentioned?
Why do corporations/governments issue bonds?
What is important to remember about bonds?

7. What is a bond?
A d____ instrument issued by governments, corporations and other entities in order to finance projects or activities. A l____ that investors make to the bond’s i______.
Term used for the price of a bond on primary market?
F____ value.
What is the face value of a bond?
The amount l_____ to the issuer.
What does the investor receive in exchange for the loan?
Interest, known as c______.

8. What is maturity?
The time when a financial instrument (such as a bond or an insurance policy) becomes ready to be p_____. Bonds are issued for a specified period of time.
Maturities mentioned?
1 year, 3 years or 30 years
Coupons menioned? 8%
Why do corporations/govts. issue bonds?
To fund capital projects / public projects

9. The higher the interest rate, the m______ risk it is likely to carry.
What is important to remember about bonds?
The higher the interest rate, the m______ risk it is likely to carry.

10. STOCKS VS. BONDS, cont.
Bonds are considered to be less ______ for two reasons:
1. Dividends can be paid to ___________ only after the interest rates due to bondholders have been paid. This means that bondholders have a _____ _____ _____.
2. If the corporation runs into problems, stockholders may receive no ________ and the value of their stock may ___________________.
Unless the corporation goes bankrupt, bondholders are guaranteed a fixed interest rate and the return of the _______ at _______.

11. DIFFERENCE BETWEEN BONDS & SHARES
lender
less risky
(get their money back)
pay fixed rate of interest
(regular intervals)
maturity date (principal)
tax deductable (interest
payments before paying tax)
SHARES (STOCKS)
owner
uncertain investment
(depends on profit)
pay dividends on a profit
(may be higher return)
no maturity date
dividends paid out of already taxed profits

12. MATCH UP THE VERBS WITH THE NOUNS TO MAKE COMMON VERB-NOUN COMBINATIONS:
borrow ___________ a) activities
deduct ___________ b) assets/bonds
finance ___________ c) interest/dividends/tax
issue _______________ d) principal
pay _________________ e) money
raise ________________ f) shares/bonds
repay _______________ g) money
sell _________________ h) interest payment/tax
receive ______________ i) a return