Personal Finance Chapter 10 Review

Debenture a bond that is backed only by the reputations of the issuing corporation rather than by its assets
Mortgage bond (secured bond) a bond that is backed by assets of a corporation, safer investment than a debenture because it is backed by corporate assets
Subordinated Debentures type of unsecured bond that gives bondholders a claim to interest payments and assets of the corporation only after all other bondholders have been paid
Convertible bond a bond that an investor can trade for shares of the corporation’s common stock
Sinking funds a fund to which a corporation makes deposits for the purpose of paying back a bond issue
Serial bonds bonds issued at the same time but which mature of different dates
Callable when bonds have a call feature that allows a corporation to buy back bonds from bondholders before the maturity date
Premiums (when called an additional amount above the face value of the bond
How often do bondholders usually receive interest payments? Every six months
How is the dollar amount of annual interest determined By multiplying the interest rate by the face value of the bond
Registered bond a bond registered in the owner’s name by the company that issues the bond
Coupon bond – a bond that is registered in the owner’s name for only the face value and not for interest
Bearer bond a bond that is not registered in the investor’s name
Zero-coupon bond a bond that does not produce interest payments
Selling at a Discount selling for less than its face value
Selling at a Premium- when a bond is selling for more than its face value
How does a Government Bond differ from a corporate Bond 1. Government bonds are safer2. The government issues them to fund ongoing projects
Treasury Bills 1. Sold in units of $1,0002. May reach maturity in 4, 13, 26, or 52 weeks
Treasury Notes 1. Issued in $1,00 units 2. Maturity between 1 and 10 years
US Government savings bonds savings bond that offers a fixed rate of interest over a fixed period of time. Many people find these bonds attractive because they are not subject to state or local income taxes. These bonds cannot be easily transferred and are non-negotiable.
Treasury Bonds (sold up until 2001, reinstates in 2006) 1. Issued in minion units of $1,0002. Maturity between 10 and 30 years
Bonds Issued by Federal Agencies Agency Bonds Participation certificates issued by the Federal National Mortgage Association (Fannie Mae) and the Government National Mortgage Association (Ginnie Mae) are almost completely risk free. The offer slightly higher interest rates than securities and have an average maturity of 12 years. Usually the minimum denomination is $25,000.
Municipal bond (also called Muni) a security issued by a state or local government to pay for its ongoing activities.
Identify two sources for bond ratings and explain what a bond rating tells you about a bond. -Moody’s Bond Survey-Standard & Poor’s Stock and Bond Guide -Give the investor a good idea of the quality and risk associated with that bond
Closed-end Fund a fund with a fixes number of shares that are issued by an investment company when the fund is first organized (6%)
Open-end Fund A mutual fund with an unlimited amount of shares that are issued and redeemed by an investment company at the investor’s request (94%)
Load fun (commission fee) “A” shares Commission is paid every time shares are bought or soldAdvantages- Fund representatives offer advice and guidance about when the shares should be bought or sold.
No-load fund (No commission fee) Do not have sales person Same investment opportunities as load funds If both offer the same opportunities, choose no-load
Management Fees Investment companies that sponsor mutual funds also charge a fixed percentage of the fund’s asset value. (.5-1/25%)
Back-end load Fee Charged by some companies for withdrawing money from the fund (1-5%) based on how long the investor has owned shares in the fund. designed to discourage early withdrawals.
12b-1 Fee A fee that investment companies charge to help pay for marketing and advertising of a mutual fund (1% annually)
Stock Mutual Funds Majority is made up of stocks
Bond Mutual Funds Invest only in bonds
Mixed Mutual Funds Mix of stocks and bonds or in various types of securities:(1)Balanced Funds (stocks and bonds)(2)Money Market Funds (CD’s, governments securities and safe investments)(3)Stock/Bond Blend Funds(stocks and bonds, diversification factor)(4)Variety of Funds(Can switch among funds in a family to suit their needs)
Net Asset Value The value of mutual fund that is reached by deducting the funds liabilities from the market value of the of all of its shares then dividing by the number of issued shares

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