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Bonds

Bonds. By: Abby, Heaven, Mariah, Sherrie, Courtney, Hope, and Emily. I can…. Identify the different types of bonds Explain what effects the return from investing in a bond Describe why some bonds are risky Identify common bond investment strategies. Background on Bonds.

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Bonds

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  1. Bonds By: Abby, Heaven, Mariah, Sherrie, Courtney, Hope, and Emily

  2. I can… • Identify the different types of bonds • Explain what effects the return from investing in a bond • Describe why some bonds are risky • Identify common bond investment strategies

  3. Background on Bonds • Bonds: long-term debt securities issued by government agencies or corporations • Par Value: for a bond, its face value, or the amount returned to the investor at the maturity date when a bond is due • Call feature: a feature on a bond that allows the issuer to repurchase the bond from the investor before maturity • Convertible bond: a bond that can be converted into a stated number of shares of the issuer’s stock if the stock price reaches a specified price • Yield to maturity: the annualized return on a bond if its held to maturity

  4. Types of Bonds • Treasury Bonds: A long term debt securities issued by the U.S Treasury. • Municipal Bonds: A long term debt securities issued by state and local government agencies • Federal Agency Bond: Long-Term debt securities issued by the federal agencies • Corporate Bonds: Long-Term debt securities issued by large firms • High-yield (junk) Bonds: Bonds issued by smaller, less stable corporations that are subject to a higher degree of default risk

  5. Valuing a Bond • Risk premium: the extra yield required by investors to compensate for the risk of default • Default risk: Risk that the borrower of funds will not repay the creditors • Call (repayment risk): The risk that a callable bond will be called • Interest Rate Risk: the risk that a bond ‘s price will decline in response to an increase in interest rates

  6. Bond Investment Strategies • Interest Rate strategy: Selecting bonds for investment based on interest rate expectations • Passive Strategy: Investing in a diversified portfolio • Matching Strategy: investing in bonds that will generate payments to match future expenses

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