Bonds - E-Commerce - Lecture Slides, Slides of Fundamentals of E-Commerce

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Chapter 14

Investing in bonds and other

investments

Why Consider Bonds?

Bonds reduce risk through diversification.

Bonds produce steady current income.

Bonds can be a safe investment if held tomaturity.

Basic Bond Terminology and Features (Cont’d)

Call provision -- allows the issuer torepurchase the bonds before the maturitydate

Deferred calls provide more protection.

Sinking fund -- money set aside annually topay off the bonds at maturity

Different Types of Bonds

Corporate bonds

Treasury and agencybonds - Municipal bonds - Special situationbonds

Corporate Bonds (Cont’d)

Unsecured corporate debts are not secured bycollateral, and pay a higher return

Debenture -- long-term unsecured bond - Can have a hierarchy of payment, withunsubordinated and subordinated debentures

Treasury and Agency Bonds

Treasury bonds

Bills, notes, and bonds

Treasury inflation-indexed bonds

Savings bonds

U.S. Series ee bonds

I bonds

Agency bonds

Pass-through certificates

Treasury Bills, Notes, Bonds (Cont’d)

Bills mature in 3, 6, or12 months

Notes mature in 2, 3,5, or 10 years - Bonds mature in 10 to30 years - All are sold indenominations of$1,

Agency Bonds

Issued by government agencies; authorized bycongress

Federal national mortgage association (FNMA) - Federal home loan banks (FHLB) - Low risk, with interest rates slightly higher thantreasury issues - Minimum denomination of $25,000 with maturitiesfrom 1 to 40 years