logo image

Personal Finance Chapter 11

Types of Bonds:
-Mortgage Bond
A bond that is backed only by the reputation of the issuing corp
-If corps fail to make payments debenture bondholders become general creditors
Mortgage Bond/Secure Bond:
A corporate bond secured by various assets of the issuing firm
-interest rates on mortgage bonds are lower than interest rates on unsecured debentures
Convertible Bond:
A bond that can be exchanged at the owners option for a specified number of shares of the corporations common stock
Emergency Fund:
An amount of money you can get quickly in case of an immediate need
Relationship of Interest Rates and Values of Bonds:
As one increases the other decreases
3 Advantages that corporations have by issuing convertible bonds are:
-Attracts investors who are interested in speculative gain
-Interest rates are lower
-If the bond is converted, it no longer has to be redeemed at maturity
Is the rise in the general level of prices
Revenue Bond:
A municipal bond that is repaid from the income generated by the project it is designed to finance
Government Bond:
Written pledge of government or a municipality to repay a specified sum of money, along with interest
Municipal Bond:
Debt security issued by a state or local govt
General Obligation Bond:
A bond backed by the full faith, credit, and unlimited taxing power of the government that issue
Interest Rate:
Risk in the result of changes in the interest rates of the economy
Bond Indenture:
A legal document that details all of the conditions relating to a bond issue
Sinking Fund:
A fund in which annual or semiannual deposits are made for the purpose of redeeming a bond issue
Serial Bonds:
Bonds of a single issue that mature on different dates
Corporate Bond:
Corporations written pledge to repay a specified amount of money along with interest
For Investment Incomes you should choose:
-Municipal Bonds
-Corporate Bonds
-Preferred Stocks
The ability to buy or sell an investment quickly without affecting the investments value
Line of Credit:
A short-term loan that is approved before the money is actually need
Steps to Investing:
1. Establishing Goals
2. Performing a Financial Checkup
3.Work to Balance Your Budget
4. Manage Your Credit Card Debt
Call Feature:
Allows the corporation to buy outstanding bonds from current bondholders before the maturity date
Business Failure Risk:
Associated with investments in stock and corporate bonds
-Bad management, unsuccessful products, competition, or other factors with cause the business to be less profitable than originally anticipated or experience loss.
-The business could fail and become worthless
Market Risk:
Rapid expansion is followed by a period of recession
-the nation is still experiencing economic problems that are affecting the value of investments
Inflation Risk:
Risk that the financial return on an investment will not keep pace with the inflation rate
Interest Rate Risk:
Associated with preferred stocks or govt corp bonds is the result of changes in the interest rates in the economy
Investors Purchase Bonds because:
-Interest income
-Repayment at maturity
-Interest income
Relationship of companies with potential dividends:
-Growth company; no dividend
-Non-Growth company; better chance of receiving a dividend
Municipal Bonds are used to finance:
-Toll Roads
Financially independent firm that acts as a bondholders’ representative
Maturity Date:
For a corporate bond, the date on which the corporation is to repay the borrowed money
Speculative Investment:
High-Risk investment made in the hope of earning a relatively large profit in a short time
Current Yield:
Determined by dividing the annual interest amount by the bond’s current price

Current Yield= Annual Interest Amount/Current Price

the lower the yield the less interest you will pay

Corporations who prefer debt financing over equity financing choose:
One Disadvantage of investing in U.S. treasuries is:
They have low interest rates
A disadvantage of selling bonds is that in the event of bankruptcy, bondholders:
Have a claim to the corporations assets
Face Value:
The dollar amount the bondholder will receive at the bond’s maturity
Asset Allocation:
The process of spreading your assets among several different types of investments to lessen risk;

based on %

For treasury securities, most investors are willing to accept the interest rate determined at auction so they are using:
Noncompetitive bids
Reasons Why Corporation Sell Bonds:
-They find it difficult to sell stock
-They use interest as a tax break
-They need money to finance ongoing activities
Advantages of Purchasing US Treasuries:
-Decreased risk of default
-safe investment
-Backed by the government
Safe investments:
-Certificates of Deposit
-Government bonds
-Select mutual funds
Emergency Fund:
Should be how much you spend a month times 3 months
When evaluating bonds:
Business periodicals and federal agency publications are 2 additional sources of information that can be valuable
Bond Ratings Range:
AAA (highest) to D (the lowest)
As the common stock value increase:
The market value of the convertible bond
An investment means minimal risk or loss
An investment means a measure of uncertainty about the outcome
A speculative investment or one that stresses immediate returns should not be considered for long term growth
Taxable equivalent yield is equal to tax-exempt yield divided by X minus your tax rate. X is equal to:
Rule of thumb for consumer credit payments:
Limit consumer credit payments to 20% of after-tax income
With a lower risk of a bond and the possible high return of a stock, investors may choose which investment option?
Convertible bonds
Maturity of a Treasury Bond takes:
30 years
Treasury inflation-protected securities pays:
Interest twice a year at a fixed rate
Bond Quotations:
Are given as a percentage of face value
Speculative investments:
Should not be considered for long-term growth

A high risk investment made in the hope of earning a relatively large profit in a short time

The advantage for an investor to trade bonds through an online broker is discounted commissions on trades
Yield is:
The Percentage Rate of Interest earned by an investor who holds Bonds for a state period of time
Dollar amount of annual interest formula:
dollar amount of annual interest = face value x interest rate
The rate of return earned by an investor who holds a bond for a stated period of time
If the corporation fails to make either interest payments or repayment at maturity, debenture bondholders become:
General Creditors
If you are a young married couple with no children, you will most likely choose investments:
With higher risks
Inflation Formula:
($10,000 x 3.5%) – ($10,000 x 4%)
$350 – $400 = $50
To calculate the current price for a bond:
Current price = bond price quotation x face value
Interest paid on U.S. government securities is:
Taxable for federal income tax purposes, but is exempt from state and local taxation
Bonds paying 10% in an economy where the average is 5% are advantageous for the investor, and the investor would prefer for the bond:
Not to be called
Guaranteed municipal securities usually carry a slightly:
Lower interest rate than uninsured bonds
When a company calls a bond when the current interest rates are lower than the bond’s interest rate, this is:
unfavorable for inestors
Conservative Investments with Less Risk
-People with no financial training or investment background
-Old investors
-Lower-income investors
-Families with children
-Employees worried about job loss
Speculative Investments with High Risks:
-Investors with financial training and investment background
-Younger investors
-Higher-income investors
-Married couples with no children or single individuals
-Employees with secure employment positions
General obligation bonds are repaid from income generated by the project that the bond issue is financing
Captain Gain:
Results when you sell a municipal bond before maturity and at a profit may be taxable just like gains on other investments sold as a profit
The risk associated with bad news that a company may bring to the public is the risk in decreased…
Registered Bonds:
A bond that is registered in the owners name by the issuing company.
-tracked electronically
Registered Coupon Bond:
Is registered for principal only, not interest
When evaluating if a bond is a good investment, you can use:
-reports provided by the federal reserve system
-reports on corporations by the SEC
-business periodicals at your libs
Government Bonds:
a written pledge of a government or a municipality to repay a specified sun of money along with interest
Which is a better bond buyer?
-Stagger your bond holdings to receive interest each month
-the most useful yield calc is yield to maturity
-realize that commission on existing bonds are usually higher than on new bond issues
Capital Gains Tax:
This is enforced if you sold the bond for more than you paid it.
Callable Bonds:
-The money for calling bonds comes from profits, a new bond issue, or the sale of addition stock
-Companies usually cannot call bonds for 5 to 10 yrs
-Companies will often call bonds to reissue bonds with lower interest rates
Revenues bonds are repaid from income generated from project the bonds are financing
-Govt and corporate bonds are often seen a safer than stocks
-considered a safe harbor in tough economic times
-a way to diversify your portofolio

Need essay sample on "Personal Finance Chapter 11"? We will write a custom essay sample specifically for you for only $ 13.90/page

Can’t wait to take that assignment burden offyour shoulders?

Let us know what it is and we will show you how it can be done!
Sorry, but copying text is forbidden on this website. If you need this or any other sample, please register

Already on Businessays? Login here

No, thanks. I prefer suffering on my own
Sorry, but copying text is forbidden on this website. If you need this or any other sample register now and get a free access to all papers, carefully proofread and edited by our experts.
Sign in / Sign up
No, thanks. I prefer suffering on my own
Not quite the topic you need?
We would be happy to write it
Join and witness the magic
Service Open At All Times
Complete Buyer Protection
Plagiarism-Free Writing

Emily from Businessays

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/chNgQy