Bonds and Mutual Funds

1. Bonds and Mutual Funds

2. A bond is a certificate representing a promise to pay a definite amount of money at a stated interest rate on a specified due date. • The maturity date is the due date. • A creditor is someone who lends money.

3. Government Bonds • Municipal Bonds • U.S. Savings Bonds • Other Federal Securities

4. Municipal Bonds -Usually issued by a local government to do projects such as building roads. • Usually tax free (state and federal) • Low interest rate • Very Safe.

5. U.S. Savings Bonds • EE savings bonds range from $50-$10,000 • You buy them for half the price and at the end you receive the full value (i.e. pay $25 get $50 at the end date). • The difference between the price paid and the finial value is the interest. • The process is also called discounting. • Low risk.

6. U.S. Savings Bond • HH Savings bonds. • Come in values of $500-$10,000 • Are not discounted • Pay a fixed interest rate • With HH interest is paid twice a year • With EE it is only paid when cashed in at the end. • I Bond • Lower interest rate • Varies with the rate of inflation

7. Other Federal Securities • Treasury Bills (T-Bills)- Government borrows money from the investor. • Short term maturity (91 days-1Year) • Treasury Notes (T-Notes) • Long term with maturity dates from 1-10 years • Treasury bonds (T-Bonds) • Were available before 2001 • Maturity date 10-30 years

8. Corporate Bonds • When you are lending a company money. • Bond Components • Face value (Maturity Value) • The amount being borrowed • Interest is paid twice a year • At maturity date the face value is paid back. • Bond Values • Bonds are sold in $1,000 denominations • A bond selling at 100 is $1,000, 105 is $1,050

9. Mutual funds • Investment fund set up and managed by companies that receive money from several investors. The company buys several stocks and bonds. • Several types of mutual funds investments (p.g. 494) • Net asset value Worth of the investment divided by the number of shares.