Lesson 6.6Bonds and Other Financial Assets Key Terms coupon rate maturity par value yield savings bond municipal bond corporate bond junk bond capital market money market primary market secondary market Academic Vocabulary Finance:to pay for Enterprise:a venture Security:an asset that can be traded Indenture agreement:a contract that lists the payment terms of a loan Expenditure:expense Lesson Objectives 1.Describethe characteristics of bonds as financial assets. 2.Explainhow corporations raise money through bonds. 3.Describethe characteristics of other types of financial assets. 4.Listfour different types of financial asset markets. Bonds as Financial Assets:Text
1.Identify Cause and EffectWhat would cause a bondholder to sell a bond before it reaches maturity? It interest rates have risen since the bond was purchased, the value of the band will have declined. 2.SummarizeWhy would an investor purchase a bond? They provide a predictable income stream. Typically, bonds pay interest twice a year. If the bonds are held to maturity, bondholders get back the entire principal, so bonds are a way to preserve capital while investing. 3.Identify Supporting DetailsIssuing a bond poses both advantages and disadvantages. Use the graphic organizer to list them. Issuing a Bond Issuer's AdvantagesIssuer's Disadvantages 1.Issuer knows how muchinterest it will pay.2.faster tax benefits1.Company must make payments even when it doesn't make money. 2.riskier interest payments Types of Bonds:Text 4.Draw InferencesWhy do you think government bonds usually have a low risk of default? This return is usually lower than other products on the market due to the reduced level of risk involved in their investments.
5.Apply ConceptsIf a business wanted to construct a new office building, replace all its equipment, and hire new employees, what type of bond would it issue? Corporate Bonds. 6.Determine Meaning of WordsRead the last paragraph of "Junk Bonds." What do you think the wordspeculativemeans? Speculative means suspicious. Other Types of Financial Assets:Text 7.Draw InferencesWhat is a disadvantage of buying a certificate of deposit (CD)? Your money is tied up for the life of the certificate, and you have to pay a penalty if you need to withdraw your money before the term is up. 8.Determine Central IdeasWhat are the benefits of investing in a money market mutual fund? - most popular investment choice in the us - advanced portfolio management - dividend reinvestment - risk reduction - convenience
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