Bonds

Question 1

bond

Answer 1

A bond is an investment that’s tied to a loan between the bond’s issuer and the purchaser. Under the terms of the bond, the initial bond purchaser pays a set amount of money – usually $1,000 or $5,000 per bond – to the issuing entity. The issuer gets to keep that money for its own use. In exchange, the issuer agrees to pay interest to the bondholder at set intervals, commonly every six months, until the bond “matures.” Once the bond reaches maturity, the issuer pays the bondholder the principal amount back. A bond’s maturity date is set before the bond is issued, so investors know up front when they can expect to get their principal back.

Question 2

purchaser

Answer 2

The person who makes the investment

Question 3

bond issuer

Answer 3

The person who receives the bond purchase money under the agreement that they will pay interest and the principal back at a set date.

Question 4

categories depending on time

Answer 4

Short-, intermediate-, and long-term bonds

Question 5

treasury

Answer 5

issuer is the federal government

Question 6

municipal

Answer 6

issuer is the state

Question 7

corporate bond

Answer 7

Issuer is a corporation

Question 8

corporate bond

Answer 8

Issuer is a corporation

Question 9

Inflation-adjusted bonds

Answer 9

whose issuers pay an amount at maturity that accounts for changes in the purchasing power of money since the bond was issued, rather than a fixed amount.

Question 10

bond funds

Answer 10

Bond funds are pools of investments in which large numbers of investors can contribute money toward a commonly held portfolio of bonds. Typically, the bond funds that are available to most investors are either mutual funds or exchange-traded funds.

Question 11

mutual fund

Answer 11

is simply a collection of stocks and/or bonds

Question 12

market value

Answer 12

Before you buy or sell stock in a company, you should have a sense of the market value of each share.

Question 13

net asset value

Answer 13

Before you buy or sell stock in a company, you should have a sense of the market value of each share. The same goes for shares of mutual funds and exchange-traded funds, whose market value is represented by a metric known as net asset value, or NAV.

Question 14

investment grade

Answer 14

bonds that are believed to have a lower risk of default and receive higher ratings by the credit rating agencies. These bonds tend to be issued at lower yields than less creditworthy bonds. “The first two funds on the list, iShares Core U.S. Aggregate Bond and Vanguard Total Bond Market, have very similar investment objectives: to provide exposure to the entire universe of U.S. investment-grade bonds. “

Question 15

high yield bonds

Answer 15

is a high paying bond with a lower credit rating than investment-grade corporate bonds, Treasury bonds and municipal bonds. Because of the higher risk of default, these bonds pay a higher yield than investment grade bonds.

Question 16

expense ratios (bonds)

Answer 16

Low expense ratios that minimize the amount of bond income lost to pay for fund management. “As you can see in the table above, both have low expense ratios of just 0.05%, and both have attractive yields.”

Question 17

YTD (year to date return)

Answer 17

Year-to-date (YTD) return measures the performance of an investment from the current date since the start of the year. YTD returns are used to make standardized comparisons between investments and their benchmarks. To calculate YTD return, subtract its value on Jan 1 of the current year from its current value and divide by the Jan 1 value

Question 18

Why does a company issue stock?

Answer 18

It wants to raise money

Question 19

equity financing

Answer 19

At some point a company may need to raise money to expand, operate, etc. To raise money a company can either borrow (debt financing) or sell part of the company (equity financing). Companies may choose equity financing because it’s cheaper (they don’t have to pay back the principal or interest payments as in debt financing).

Question 20

why would a company sell shares?

Answer 20

to raise money.

Question 21

stock

Answer 21

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