Bonds - PowerPoint PPT Presentation

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Bonds

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  1. Bonds The last subject of Fall 2011

  2. What is a bond?? • A debt security (pay interest) • A formal contract to repay borrowed money with fixed intervals • Like a loan • Lender (creditor) • Borrower (debtor) • Provides Borrower with external funds • To finance investments, or finance current expenditure

  3. Bonds vs. Stocks • What’s the difference between bonds vs. stocks?? • Stockholders have equity stake in the company • Bondholders have a creditor stake in the company • Bonds have a defined term or maturity • Exceptions: consol bond: no maturity

  4. Government Bonds • Issued by national governement usually in the country’s currency. • First was issued by the English government 1693 (raise money against war with France)

  5. English Bonds

  6. US Bond

  7. War Bonds

  8. Generates capital for the government • Makes civilians feel involved in their national militaries • Controls inflation • Encourages spending (when liquidated)

  9. Bond Rating