All About BONDS

What are they?

CORPORATE BOND• a corporation’s

written pledge to repay a specific amount of money, along with interest.

GOVERNMENT BOND• written pledge of a

government or municipality (city) to repay a specific sum of money with interest

BOND BASICS3-5% Return Over Time

SHORT TERM <10 years

LONG TERM 10-30 years

GOVERNMENTSafest, federal gov. isn’t going

anywhere, lowest return

MUNICIPLE Pretty safe, includes local and state governments

CORPORATELonger term usually has a better

return than shorter term, but you are betting the co. will still be around

HIGH YIELD (JUNK) Highest rate of return, but the riskiest of all the bonds

CORPORATE BONDS• Legal document that details all the

conditions of the bondBond

Indenture• When a bond will be repaid

(usually 1-30 years)Maturity Date• Dollar amount bondholder will

receive @ maturity. Corp bonds usually have a face value of $1000

Face Value

• Allows a company to buy back bonds before they mature. Usually the company pays a fee to the holder if they do this

Call Feature

• Interest rateCoupon

How BONDS Work:

1. You pay $1,000 for a 15 year AT&T Bond at 7.5% interest/year.

2. Each year, you get $75 (1000*.075)

3. After 15 years, you get your $1000 back

TOTAL EARNED = $75*15 years = $1125

GOVERNMENT BONDSTR

EASU

RY B

ILLS

(T-B

ILLS

) • Sold in units of $1000

• Mature in weeks (4, 13, 26, 52)

• “Discounted Security” – you pay LESS than the face value

TREA

SURY

NO

TES • Sold in units of $1000

• Mature in 10 years

• Higher rate than a T-Bill

US

SAVI

NGS

BO

NDS • Purchase price

is ½ Face Value ($100 Bond costs $50)

• Can redeem anytime from 6m to 30y (get what you paid + interest)

• Not taxed by state, but must pay FED taxes when you cash it in

What Does a Savings Bond Look Like?

How to buy government bonds, or look up your bond info:

• www.savingsbonds.gov