Chapter 13

Question 1

examples of govt bonds

Answer 1

Series EE and I
treasuring bills and notes ($1000 minimum) different holding lengths
agency bonds: lending to support particular govt agency (Fanny Mae)
municipal bonds: lending money to small govt units to support development (typically exempt from taxes)

Question 2

examples of corporate bonds

Answer 2

debenture: agreement to buy bond for given principal and interest
secured bonds: safe from company going under (lower interest)
subordinated debentures: unsecured from company fallout
convertible bonds: able to convert to stock
callable bonds: company calls the bond back

Question 3

reasons for purchasing corporate bonds

Answer 3

interest income: can plan it to collect interest when regular income is lower
zero-coupon bonds: sold for really cheap (junk bonds) low rate, more volatile, tax-sheltered, held for long time
potential capital gains if value of bond goes up
tax consequences

Question 4

What is considered a good bond rating?

Answer 4

the more A’s the better

Question 5

Bond

Answer 5

lend money to govt or corporation in the form of a bond

• collect interest on investment
• receive principal when bond is due