19.3 bonds and mutual funds Flashcards
What affects the value of a bond?
- changing interet rates and the credit rating of the borrowing organization
- if the bond’s stated interest rate is lower than interest rates on similar bonds then investors will want to buy the bond for less than its face value
- if the bond’s stated interest rate is higher than interest rates on similar bonds than the seller of the bond will want to receive more than its face value
Why do governments and corporation sell bonds?
to raise money for current operations or future expansions
value of each share in a mutual fund
net asset value (NAV)
the price of a mutual fund share is most affected by
- current tax rates
- the value of investments
- current foreign rates
- the value of housing
the value of investments
bonds represent ____
debt
What is a safe investment for people with small amounts of money to invest?
US savings bonds
bonds represent ____ of a company and stocks represent ____ in a company
bonds represent debt of a company and stocks represent ownership in a company
bonds issued by local and state governments
municipal bonds
aka munis
true or false
a bondholder is part owner of a company
false
a stockholder is part owner of a company
What is the different between investing in bonds and investing in stocks?
- when you invest in stock you become an owner in the company
- when you buy a bond you are lending money to the company
gotham city wants to pave a new street, batman boulevard. how can it fund the project?
- sell stock
- encourage local citizens to purchase municpal bonds
- purchase a bond fund
- do a hostile takeover of another city
encourage local citizens to purchase municipal bonds
describe mutual funds
- is managed by a professional who uses the investors’ money to buy and sell a wide variety of stocks or bonds
- the value and income of the investments made determine the value of the mutual fund shares
place where bonds are bought and sold
Bond Market
Each bond has a ____ value, also called the maturity value
each bond has a face value, also called the maturity value
interest is paid to a bondholder based on the bond’s
- maturity (face) value and stated interest rate
- stated interest rate and market value
- maturity date and maturity (face) value
maturity (face) value and stated interest rate
What are the 6 main types of mutual funds?
- Aggressive growth stock funds - seek quick growth, but also have higher risk
- Income funds - specialize in stocks that pay regular dividends
- International funds - invest in stock of companies from around the world
- Sector funds - buy stocks of companies in the same industry such as health care, energy or telecommunications
- Bond funds - specialize in corporate bonds
- Balanced funds - invest in both stock and bonds
Which of the following is NOT true about a mutual fund?
- it is less risky than purchasing individual stocks
- it is managed by a professional fund manager
- a fee is charged to manage the fund
- it will not help you diversify your portfoloio
it will not help you diversify your portfolio
an investment fund set up and managed by a company that receives money from many investors
mutual fund
more than 60,000 different ____ funds are available to investors around the world
more than 60,000 different mutual funds are available to investors around the world
What are some different objectives of mutual funds?
- some emphasize growth stocks
- some emphasize stocks that pay high dividends
- some emphasize international stocks
Describe Series EE savings bonds.
- can buy from $50-$10,000 range
- is bought at half its face value (so you pay $25 for a $50 bond)
- length of time bond is held determines the amount of interest
- interest is exempt from state and local taxes
Describe a corporate bond.
- each bond has a face value
- interest is paid to the investor periodically (usually 2 times per year)
- the interest paid is based on the face value and the stated interest rate
- on the bond’s maturity date, the face value is repaid to the investor
true or false
interest rates in an economy affect the value of a bond
true
Describe the I Savings bond.
- pay an interest rate that changes with inflation
- purchased at face value (you pay $50 for a $50 bond)
A ____ buys stocks of companies in the same industry such as healthcare, food or finance
- aggressive-growth stocks fund
- sector fund
- bond fund
- income fund
sector fund
a series EE savings bond purchased for $50 would have a face value of:
- $50
- $100
- $150
- $200
$100
bonds issued by corporations
corporate bonds
What do you become when you buy a bond?
creditor
municpal bonds are issued by
- corporations
- federal govt
- international companies
- state and local govts
state and local governments
a certificate representing a promise to pay a definite amount of money at a stated interest rate on a specified due date
bond
When you buy a ____, you are lending money to the organization selling the ____.
when you buy a bond, you are lending money to the organization selling the bond
What is an advantage of municipal bonds?
the interest earned on these bonds is usually tax exempt from federal and state income taxes
Most municipal bonds are considered ____ investments than corporate bonds
most municipal bonds are considered safer investments than corporate bonds
What is the difference between treasure bills (t-bills) and treasure notes (t-notes)?
t-bills are for short term (91 days to 1 year)
t-notes are longer term (1-10 years)
the due date of a bond
maturity date
What are 3 types of government bonds?
- municipal bonds
- US savings bonds
- Treasure bills
What are t-bonds?
- treasure bonds
- involve long term borrowing with a maturity of up to 30 years
which of the follwoing is not one of the types of US savings bonds discussed in your book and / or class?
- I
- EE
- ZZ
ZZ
