Ch 7 Bonds & Other Lending

What is a bond?

• A type of stock

• A debt security used to raise money

• A form of currency

• A government tax

What is a characteristic of municipal bonds?

• Fully taxable

• State and local government bonds that are tax-free to residents

• High-risk securities

• Convertible to stocks

Which bonds are good for lower tax bracket investors?

• Corporate Bonds

• Junk Bonds

• International Bonds

• Zero Coupon Bonds

What is a characteristic of international bonds?

• Vital for a diversified portfolio

• Issued by local governments

• Outside the country and not vital for a diversified portfolio

• High yield and tax-free

What is a characteristic of zero coupon bonds?

• Regular interest payments

• Highly sensitive to interest rates

• Convertible to stocks

• Tax-free

Which bonds are problematic due to subprime mortgage loans?

• Convertible Bonds

• Junk Bonds

• Mortgage Bonds

• International Bonds

What do you get with ownership investments?

• Fixed interest rate

• Partial ownership in a company

• Guaranteed returns

• Tax-free income

When is it advisable to use ownership investments?

• When you expect to sell within 5 years

• When you don’t need to make your money grow after inflation or taxes

• When you are investing long term like 7+ years

• When you need your current income

What is another advantage of CDs?

• Pays a set interest rate

• High liquidity

• No penalties for early withdrawal

• Unlimited term options

How long can you typically choose to invest in a CD?

• 3, 4 or 5 years

• 6, 12, or 24 months

• 2, 4, or 6 years

• 10, 20, or 30 years