Bonds and Mutual Funds

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.

Government Bonds Municipal Bonds

U.S. Savings Bonds

Other Federal Securities

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.

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.

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

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

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

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.