1. Today’s Schedule – 11/12 Calculating Compound Interest PPT: Saving & Investing Part2 HW: – Read 21.2

2. Bonds Like an IOU stating that you loaned money to the government or a corporation – Outlines the terms of repayment Buy the bond at a discounted rate Bond has a fixed interest rate over a set period of time When the time is up bond is considered “matured” and buyer can redeem bond for face value

3. 3 Components of a Bond Coupon Rate- Interest rate paid to the buyer Maturity- Time at which payment is due Par Value- Amount paid for the bond

4. Discounted Bonds “Discount from par” Buying a bond for less than its face value Example- Spend $960 for a $1,000 bond – When bond matures will have earned $40

5. Bond Ratings Two firms rate bonds – Standard & Poor’s and Moody’s Ratings based on: – The ability of the issuer to pay the interest rates – The ability of the issuer to repay the principal – AAA (high interest rate)  D (low interest rate)

6. Advantages of Bonds Relatively safe Interest rate doesn’t change Buyer of a bond does not take part ownership in the company

7. Disadvantages of Bonds Issuer must make fixed payments Interest rate doesn’t change Low bond ratings can make it hard to sell a bond

8. 5 Types of Bonds 1.Savings Bonds -$50- $10,000 -Issued by the U.S. government -Purchased at discounted rate -Very safe 2.Treasury Bonds (“T-Bonds,” “T-Bills”) - Varying length of maturity

9. 5 Types of Bonds 3. Municipal Bonds -Sold by state and local governments -Rating depends on financial health of state/local government -Not subject to income tax

10. 5 Types of Bonds 4.Corporate Bonds -Issued in large denominations -Interest earned is taxable -Moderate risk levels -Watching by the Securities & Exchange Commission (SEC) -Government agency that regulates financial markets and investment companies

11. 5 Types of Bonds 5. Junk Bonds -Low ratings -Potential for high yield

12. 4 Types of Financial Markets 1.Capital Market -Money lent for longer than a year -Ex.: CD, Bonds 2.Money Market -Money lent for less than a year -Ex.: CD, T-Bill

13. 4 Types of Financial Markets 3. Primary Markets -Assets can only be redeemed by purchaser Ex.: Savings bonds 4. Secondary Markets -Assets than can be resold -Ex.: Stocks