bond securities

8/8/2019 Bond Securities

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Bonds & Fixed-Income SecuritiesInvestment Strategies



Stocks vs Bonds

Stocks represent ownership of companies.

Th ey represent participation in acompany¶s growt h

B onds represent loans made tocompanies. Contractual loans are madebetween investors and institutions



A Closer Look: Bonds

F orm of debt

F ace value is returned to t h e investorat maturity; w h at about interest?

Help t

he federal or state governments,or companies to generate revenue

D efault risk



A Closer Look: Stocks

V oice in a company

Investments h ave ambiguous returns

R eturns directly related to rising stockprices

H ig h er returns, h ig h er risk



Bonds vs Stocks



Bond Rating A gencies

R ating agencies are private companies t h at evaluatet h e bond¶s financial h ealt h and ability to repay itsobligations in a timely manner.

M ajor agencies include M oody¶s Investor Service,Standard and Poor¶s R ating Services, and F itc h IB CA.

M oody¶s rates bonds from Aaa, t h e h ig h est rating,to D , t h e lowest.

Standard and Poor rates from AAA to C.



Classifications

Investment Grade B onds: B onds rated h ig h ert h an B aa on M oody¶s or BBB on Standard andPoor¶s. Th ey possess t h e lowest risk of anyavailable bond. Th e h ig h rating reflects acompany wit h good financial stability. D ue tot h e low risk t h e yield (interest) is also lower.

Intermediate Grade B onds: B onds wit h companies in a fair condition. Th ey usuallyh ave low risk in a s h ort term but become morerisky wit h a longer maturity. Th e increase inrisk costs t h e issuer a h ig h er interest rate. Th eratings are B , B a for M oody¶s and BB forStandard and Poor¶s.



J unk Bonds

J unk B onds are t h e lowest rated bonds. Th ey arerated at Caa/CCC or lower. Th ese are t h e mostspeculative of bonds and t h erefore bear t h e h ig h estrisk for even a s h ort term. J unk bonds tend to beassociated wit h a company falling apart or one onits way to investment quality. Th e yields junkbonds pay are h ig h at a h ig h risk.³J unk B onds´ are most associated wit h t h e 1980¶s

wh

en lots of mergers and acquisitions occurred.T

ofinance t h ose expenses companies would sell junkbonds to t h e public wit h very h ig h interest suc h t h atsome investors would buy t h eir low-quality bonds.



Wh at is a Mortgage?

A mortgage is a conveyance of aninterest in property as security for t h e

repayment of borrowed money.

A mortgage loan is a loan to finance

t h e purc h ase of real estate, usuallywit h specified payment periods andinterests rates.



Mortgage Loans

A mortgagor (borrower) gives t h emortgagee (lender) a lien as collateral fort h e loan.A lien is a legal claim against an asset w h ich is used to secure t h e loan.Th e property is normally real estate- land,h ouses, buildings, but it could also be largeitems suc h as s h ips or h uge mac h inery.Loans always come wit h interest rates andt h ese rates vary wit h t h e type of mortgageone gets.



Typ es of Loans

Th ere are many different types of mortgageloans: conventional, general, first, second,long term, open-end, close-end, etc«M ost people are familiar wit h fixed-ratemortgages and t h ey are normally 15 or 30years in lengt h .

Th e longer t h e term, t h e h ig h er t h e interestrate.V ariable rate? Subprime mortgage loans «



Mortgage Requirements

Getting a mortgage depends on:-credit h istory -income

-t h e lender -purpose-t h e state -amount loaned

T o get a mortgage one must talk to amortgage broker.

Questions?

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