Presentation is loading. Please wait.

Presentation is loading. Please wait.

Section 2 – Bonds and Other Financial Assets

Similar presentations


Presentation on theme: "Section 2 – Bonds and Other Financial Assets"— Presentation transcript:

1 Section 2 – Bonds and Other Financial Assets
Chapter 11

2 Objectives Describe the characteristics of bonds as financial assets.
Identify different types of bonds. Describe the characteristics of other types of financial assets. Explain four different types of financial asset markets.

3 Bonds Bonds are certificates sold by a company or government to finance projects or expansion WWII War Bonds Fancy IOU’s Represent debt that gov’t/corporation must repay to investor

4 Three Components Coupon Rate Maturity Par Value
Interest rate Maturity When payment is due (10, 20, 30 yrs) Par Value Face value or Principal Buyer=“Holder”, Seller=“Issuer”

5 Bonds Yield (Example Page 278) Discount from Par Annual rate of return
Not all bonds are held to maturity Can be bought or sold, price change Discount from Par Ex. Page 278

6 Bond Ratings Two Firms That Publish Bond Ratings Good
Higher Rating could make the bond sell at a higher price and lower interest rate

7 Issuer’s Point of View Advantage of selling bonds Disadvantages
Coupon rate will not go up or down Bondholders do not own part of company like stocks Disadvantages Even in bad years company must make payments Firm’s bonds may receive low rating and be harder to sell

8 Types of Bonds Savings Bond Treasury Bonds, Bills and Notes
$50-$10,000 Virtually no risk Gov’t, uses for public works projects Purchase a $50 Savings Bond for $25, when it matures get $25 you paid plus $25 interest Treasury Bonds, Bills and Notes U.S. Treasury Department T-Bills, T-Notes Backed by “full faith and credit” of U.S. Gov’t Diff. Term lengths

9 Types of Bonds Municipal Bonds Corporate Bonds Junk Bonds
“Muni’s” State and Local Gov’ts use for public improvements Safe Corporate Bonds Moderate risk Rely on company’s success Junk Bonds Low Rating, High Risk, Potential for High Yield International Bonds Foreign Countries issue bonds

10

11 Securities and Exchange Commission
An independent government agency that regulates financial markets and investment Companies. It enforces laws prohibiting fraud and dishonest investment practices.

12 Other Financial Assets
Certificate of Deposit Money Market Mutual Funds Not Covered by FDIC insurance, so risky Stock

13 Financial Asset Markets
Capital Markets Greater than 1 yr Long-term CD’s, Corporate and Gov’t Bonds Money Markets Less than 1 yr Short-term CD’s, T-bills, Money Market Mutual Funds

14 Financial Asset Markets
Primary Non-transferable Savings Bonds Secondary Can be resold without penalty


Download ppt "Section 2 – Bonds and Other Financial Assets"

Similar presentations


Ads by Google