By: Abby, Heaven, Mariah, Sherrie, Courtney, Hope, and Emily BONDS

I CAN… Identify the different types of bonds Explain what effects the return from investing in a bond Describe why some bonds are risky Identify common bond investment strategies

BACKGROUND ON BONDS Bonds: long-term debt securities issued by government agencies or corporations Par Value: for a bond, its face value, or the amount returned to the investor at the maturity date when a bond is due Call feature: a feature on a bond that allows the issuer to repurchase the bond from the investor before maturity Convertible bond: a bond that can be converted into a stated number of shares of the issuer’s stock if the stock price reaches a specified price Yield to maturity: the annualized return on a bond if its held to maturity

TYPES OF BONDS Treasury Bonds: A long term debt securities issued by the U.S Treasury. Municipal Bonds: A long term debt securities issued by state and local government agencies Federal Agency Bond: Long-Term debt securities issued by the federal agencies Corporate Bonds: Long-Term debt securities issued by large firms High-yield (junk) Bonds: Bonds issued by smaller, less stable corporations that are subject to a higher degree of default risk

VALUING A BOND Risk premium: the extra yield required by investors to compensate for the risk of default Default risk: Risk that the borrower of funds will not repay the creditors Call (repayment risk): The risk that a callable bond will be called Interest Rate Risk: the risk that a bond ‘s price will decline in response to an increase in interest rates

BOND INVESTMENT STRATEGIES Interest Rate strategy: Selecting bonds for investment based on interest rate expectations Passive Strategy: Investing in a diversified portfolio Matching Strategy: investing in bonds that will generate payments to match future expenses