Pass-through Certificates
•Issued by government
national mortgage
association (GNMA)
•Minimum $25,000
certificate for pool of
mortgages
•Principal and interest repaid
monthly
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Understanding Various Bonds: Pass-Through Certificates, Treasury Inflation Bonds, US Serie, Slides of Fundamentals of E-Commerce
An overview of various types of bonds, including pass-through certificates issued by the government and mortgage associations, treasury inflation-indexed bonds, us series ee bonds, municipal bonds, special situation bonds like zero-coupon and junk bonds, and the concept of bond yield. Each bond type has unique features, such as minimum investment amounts, tax implications, and liquidity.
Typology: Slides
2012/2013
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Pass-through Certificates
Issued by governmentnational mortgageassociation (GNMA) - Minimum $25,000certificate for pool ofmortgages - Principal and interest repaidmonthly
Treasury Inflation-indexed Bonds
Maturities of 10 years and a minimum parvalue of $1,
Inflation increases the face value of the bond,guaranteeing the investor a real return - Tax complication -- must pay taxes annually onpar value adjustments
Municipal Bonds (Muni’s)
Issued by to fund public projects
Interest earnings are federal tax-exempt - Can be exempt from state taxes if you live inthe state where bonds issued - Not very liquid, due to the lack of a secondarymarket
Municipal Bonds
(Cont’d)
Two basic types
General obligation - Revenue - Serial maturity -- a portion of the debt comesdue each year for a set number of years - Not risk free; check the bond ratings
Zero-coupon Bonds
Issued by corporations, municipalities, and thetreasury (e.G., STRIPS)
Do not pay interest - Are sold at a discount from face value - Annual appreciation is taxed although it is notrealized - Fluctuate more with interest rate changesthan traditional bonds
Junk Bonds
Have very low ratings - Normally offer veryhigh interest rates - Have a high defaultrate - Are almost alwayscallable
Ways to Measure Bond Yield
Current yield - Yield to maturity - Equivalent taxableyield on muni’s
Current Yield
Ratio of annual interest payments to thebond’s market price
Current yield = Annual interest payments Market price of the bond