CFP - Bonds Flashcards
Are US Treasury securities taxable?
NON-taxable at the state and local level
Series EE / Series E Bonds
Minimum purchase?
Annual maximum?
Face value?
Pay interest?
Redeemable?
$25 minimum purchase
$10,000 annual maximum
Offered at one-half face value
DO NOT pay interest, bond slowly increase in value over 20 years
NOT marketable/Non-transferable!!!!!!!!!!!!
Redeemable after 1 year with 3 month interest penalty if redeemed in less than 5 years
NOT taxed at the state or local level
Series HH / Series H Bonds
How often do they pay interest?
Pay interest semi-annually
*have not been issued since August 2004
Series I Bonds
Indexed against what?
Sold at what?
Interest consists of what?
Inflation indexed bonds
Sold at Face Value
No guaranteed return
NONMARKETABLE
Interest consists of what?
Fixed rate of return + inflation component
*Adjusted every six months
MARKETABLE US Treasury Bills
< 1 year
Sold at discount
No interest, just mature
Denominations of $100+
MARKETABLE US Treasury Notes
2-10 years
Interest paid semi-annually
Denominations of $100+
MARKETABLE US Treasury Bonds
> 10 years
Interest paid semi-annually
Denominations of $100+
Original Issue Discount (OID)
OID bond issued at a discount from Par Value
Ex: Zero coupon bond that is sold at a deep discount to par value
Bond increases in value over the term of the bond
Recognize income each year (even though not received)
Treasury Inflation Protected Securities (TIPS)
coupon rate does not change
rather it is adjusted annually for inflation by a factor
Separate Trading of Registered Interest and Principal Securities (STRIPS)
Coupon payment separated from the bond
low risk
highly liquid
specific time horizon
Name 2 types of bonds that mitigate against purchasing power risk?
I Bonds
TIPS
Federal Agency Securities…are they back by US government
NO, but they are a moral obligation
Exception: GMNAs
On-Budget types of Debt
GNMA
FHA
Off Budget Debt
FNMA (Fannie Mae)
FHLMC (Freddie Mac)
SLMA (Sallie Mae)
FFCB (Federal Farm)
FICB
FHLB
Types of Mortgage Backed Securities
GNMA (Ginnie Mae) (FHA/VA)
FNMA (Fannie Mae)
Biggest risk with Mortgage-backed securities?
Falling interest rates
What are MBSs backed by?
A pool of mortgages
Risk:prepayment
What are corporate Collateral Trust bonds?
Backed by an asset owned by the company issuing the bonds
What are CMOs?
Collateralized Mortgage Obligations
Short/Immediate/LT “tranches”
Types of Unsecured Corporate Bonds
Debentures (not back by asset)
Subordinated Debentures (lower claim on assets)
Income bonds
If a bond rating agency rates a bond high, what will happen to the yield?
Lowers the yield if rated high
GIC - Guaranteed Investment Contract
Issued by?
Return?
GIC - Guaranteed Investment Contract
Issued by? - Insurance Companies
Return? guaranteed rate
YIELD IS HIGHER THAN TREASURIES
Municipal bonds
Who issues?
Who taxes?
Who issues? STATE
Who taxes? NO ONE
MUNICIPAL BONDS: General Obligation Bonds
Who backs?
Backed by full, faith, and credit and taxing authority of municipality
BACKED BY TAXING AUTHORITY OF THE ISSUING MUNICIPALITY