Investing in Bonds Worksheet

Investing in Bonds
Directions: Use your textbook to read and summarize the following pages regarding stock
investments. Gather information to complete the outline below:
13.1 Evaluating Bonds (pages 282-288)

Corporate Bonds
1. Provide two examples of how bonds and stocks are different.
Stocks are part ownership in a company, bonds are loans to a company
Stocks are theoretically unlimited in upper value, bond buyers generally know
their upper limits.
2. How long do bond maturities typically range? Bond maturities can range between
1 day and 100 years, but a majority of bonds range from 1 to 30 years.
3. Explain a bonds face value. The nominal value or dollar value of a security stated
by the issuer. For bonds, its the amount paid to the holder at maturity (generally
$1,000).
Features of Corporate Bonds
1. What is a fixed income investment? Generally pay a return on a fixed schedule,
though the amount of the payments can vary.
2. Explain a bonds contract rate. Its the interest rate that will be paid on the
principle balance for the life of the note or bond.
Explain Each Type of Corporate Bonds
Callable Bonds- A bond that can be redeemed by the issuer prior to its maturity.
Debentures- type of debt instrument that is not secured by physical assets or collateral.
Secured Bonds- type of bond that is secured by the issuers pledge of a specific asset,
which is a form of collateral on the loan.
Convertible Bonds- type of bond that the holder can convert into a specified number of
shares of common stock in the issuing company.
Zero-Coupon Bond- a bond that is issued at a deep discount to its face value but pays
no interest.
Explain Types of Government Bonds

Municipal Bonds
a. Revenue Bonds- they finance income-producing projects and are secured by a

specified revenue source.
b. General Obligation Bonds- debt instruments issued by states and local

governments to raise funds for public works.
Savings Bonds and Treasury Securities
Agency Bonds- a security, usually a bond, issued by a U.S. government-sponsored

agency or federal budget agency.
Earnings on Corporate Bonds

Explain the difference between buying a bond at a premium and buying a bond at a
discount.
A bond that is traded above its par value in the secondary market is a
premium bond. A discount bond is traded below par value in the secondary
market.
13.2 Buying and Selling Bonds (pages 291 294)

Owning Bonds
1.) Explain how full-service brokers can assist you in buying and selling bonds.
They help you research bonds to find the best bonds for you.
2.)How can you buy U.S. Treasury Securities, such as savings bonds?
Return on Bonds
1.) In what three ways can an investor earn a return on bonds?
Risk on Bonds
1.) Is the risk level the same on all bonds? Explain. No their not all the same
because some companies or states charge more for bonds.
2.)What is an investment-grade bond? Bonds that are judged by the rating agency
as likely enough to meet payment obligations that banks are allowed to invest in
them
3.)List two bond rating services that investors use to determine if a bond is a good
investment.
Moodys investors Service and Standard & Poors (S&P)
Reading Bond Listings
Explain what each column in a bond listing represents.
Column 1: Issuer- this is the company, state, or country that is issuing the bond.
Column 2: Coupon- the coupon refers to the fixed interest rate that the issuer
pays to the lender.
Column 3: Maturity date- this is the date the borrower will repay their principle.
Column 4: bid price- price someone pays for the bond.
Column 5: yield- indicates annual return until the bond matures.
Column 6:
Column 7:
Match the following terms and definitions:
1. a corporate bond that can be exchanged for
common stock
C
a. agency bond
2. A bond issued by a federal agency
b. callable bond
3. A corporate bond backed by the general

credit-worthiness of the company
D
4. The amount the bondholder is paid at bond maturity
c. convertible bond
E
d. debenture
5. a bond that is backed by specific assets as collateral H
e. face value
6. a bond issued by a state or local government F
f. general obligation
bond
7. a bond that can be paid off early
g. municipal bond
8. a bond backed by the power of a government unit to

levy taxes to repay the debt
G
h. secured bond
9. a category that tells an investor the risk assigned to

a bond
K
i. bond default
10. a bond that is considered of the highest quality
11. when the bond is paid off at maturity by its issuer
j. bond fund
M
k. bond rating
12. a group of bonds that have been bundled together for

Investment purposes
L
l. bond redemption
13. a bond that has a low rating or no rating at all
m. investment-grade
bond
14. when a bond issuer cannot meet the interest or

principal payment on a bond I
n. junk bond
Bonds are promissory notes (or a promise) to repay a certain amount of money at some
point
Who Issues Bonds
1. Companies
2. Non-Profits
3. Government Agencies
Local/City Government
State Government
Federal Government
Ways to make money with bonds
1. Receive regular interest
2. Trade bonds at a higher than their face value
Risks of investing in bonds
1. Interest rates change
2. Corporation can go bankrupt
Treasury bonds
1. Issued to finance the debt of the federal government
2. No default Risk
Federal Agency Bonds
1. FHA (federal housing administration)
2. Government National Mortgage Association
Municipal Bonds
1. Issued by state and local government
2. Finance large public projects (water & sewer systems)
3. Small default risk
Corporate bonds
1. Issued by large firms
2. Variety of risk depending on company strength
3. Junk bonds issued by companies with the highest risk
4. Corporate bonds have greater default risk than a government-backed bond
Buying bonds
1. Investors can buy and trade bonds similar to the way

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Investing in Bonds

13.1 Evaluating Bonds (pages 282-288)

Explain Types of Government Bonds

a. Revenue Bonds- they finance income-producing projects and are secured by a

b. General Obligation Bonds- debt instruments issued by states and local

Savings Bonds and Treasury Securities

Agency Bonds- a security, usually a bond, issued by a U.S. government-sponsored

Earnings on Corporate Bonds

13.2 Buying and Selling Bonds (pages 291 294)

2. A bond issued by a federal agency

3. A corporate bond backed by the general

5. a bond that is backed by specific assets as collateral H

6. a bond issued by a state or local government F

7. a bond that can be paid off early

8. a bond backed by the power of a government unit to

9. a category that tells an investor the risk assigned to

10. a bond that is considered of the highest quality

11. when the bond is paid off at maturity by its issuer

12. a group of bonds that have been bundled together for

13. a bond that has a low rating or no rating at all

14. when a bond issuer cannot meet the interest or

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