L2. Bonds

Question 1

Financial instruments (securities)
3 groups

Answer 1

debt (certificate sir deposits; bonds)
Equity ( common and preferred stocks)
Derivative securities ( futures, forwards, options, swaps etc)

Question 2

Low risk high liquidity financial instruments

Answer 2

saving accounts ( fixed earnings)
Checking accounts (liquid accs with checking function)

Question 3

Time deposits

Answer 3

client keeps money in the bank for fixed amount of time and pay you a fixed amount of interest. Interest is usually higher than on a savings account. You can withdraw money earlier you don’t get no interest, since you break the contract

Question 4

Certificates of deposits

Answer 4

time deposit that can be traded to the other people. CDs can be traded without withdrawing the deposit from the bank

Question 5

Financial instruments by issuer

Answer 5

government ( government bonds)
Corporations ( equity: common stocks, preferred stocks) corporate bonds
Municipalities ( local bonds)

Question 6

Bonds

Answer 6

When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation. In return you receive invested money and also get some profits later on. People purchasing bonds receive some kind of paper in return as a proof of purchasing it

Question 7

Par/Face value

Answer 7

the value returned to the bond owner at the maturity

Question 8

Maturity(

Answer 8

(expiration date of bond)- The length of time until the bond issuer returns the par value to the bondholder and terminates or redeems the bond.
Indenture- The legal agreement between the firm issuing the bond and the trustee who represents the bondholders

Question 9

Coupon bonds

Answer 9

interest gaining after each period (interest every period of time and par value at the maturity)

Question 10

Zero coupon bond (discount)-

Answer 10

the return comes as capital gain (par value+ extra at the maturity)

Question 11

Government bond issues

Answer 11

treasury bills (1 year)
Treasury notes (2-10 years)
Treasury bonds ( 10 years)

Question 12

Municipal bonds

Answer 12

general obligation bonds
Revenue bonds ( tied to revenue from the project)

Question 13

Corporate bonds

Answer 13

just getting ton of creditors instead of a bank

Question 14

Capital gain

Answer 14

is the difference between the purchase and the sale price of an asset.
*If you buy a bond for $91 and sell it for $100, your capital gain is $9 (or roughly 10%).
Capital gain = increase or de area se in price =P2-P1