Bonds

Notes by Michael

20. Bonds, principle, interest, bond type
• Bond- a formal contract to repay borrowed money with interest.
• Principal- Amount borrowed when getting a loan or issuing a bond.
• Interest-Payment made for the use of borrowed money.
• Bond types:
-Corporate bonds: They are an important source of corporate bonds, are for long-term investment and can be quickly sold. Investors decide on the highest level of risk willing to accept and then they find a bond that has the best current yield.
• Junk Bonds- bond that carries exceptionally high risk of nonpayment and a low rating.
-Municipal Bonds: bond, often tea exempt, issued by state and local governments. They help finance highways, public works and state buildings. They are regarded as safe investment, don’t go out of business and are generally presumed that in the future they will be able to pay interest and principal for any bonds they have issued.
• Tax –exempt: not subject to tax by federal or state governments.
-Government saving bonds: Generate financial assets when it sells savings bonds.
• Savings bonds- low-denomination, non-transferable bond issued by the federal government.
They can be purchased through banks and financial intermediaries. The government pays interest on these bonds, but it builds the interest into the redemption price. They are easy to obtain and there is virtually no risk of default.
• Beneficiary- person designated to take ownership [of an asset if the owner of the asset dies.