Bonds

1
Bonds Fixed-Income Securities

• Investment Strategies

2
Stocks vs Bonds

• Stocks represent ownership of companies.
• They represent participation in a companys
  growth
• Bonds represent loans made to companies.
  Contractual loans are made between investors and
  institutions

3
A Closer Look Bonds

• Form of debt
• Face value is returned to the investor at
  maturity what about interest?
• Help the federal or state governments, or
  companies to generate revenue
• Default risk

4
A Closer Look Stocks

• Voice in a company
• Investments have ambiguous returns
• Returns directly related to rising stock prices
• Higher returns, higher risk

5
Bonds vs Stocks
6
Bond Rating Agencies

• Rating agencies are private companies that
  evaluate the bonds financial health and ability
  to repay its obligations in a timely manner.
• Major agencies include Moodys Investor Service,
  Standard and Poors Rating Services, and Fitch
  IBCA.
• Moodys rates bonds from Aaa, the highest rating,
  to D, the lowest.
• Standard and Poor rates from AAA to C.

7
Classifications

• Investment Grade Bonds Bonds rated higher than
  Baa on Moodys or BBB on Standard and Poors.
  They possess the lowest risk of any available
  bond. The high rating reflects a company with
  good financial stability. Due to the low risk
  the yield (interest) is also lower.
• Intermediate Grade Bonds Bonds with companies
  in a fair condition. They usually have low risk
  in a short term but become more risky with a
  longer maturity. The increase in risk costs the
  issuer a higher interest rate. The ratings are
  B, Ba for Moodys and BB for Standard and Poors.

8
Junk Bonds

• Junk Bonds are the lowest rated bonds. They are
  rated at Caa/CCC or lower. These are the most
  speculative of bonds and therefore bear the
  highest risk for even a short term. Junk bonds
  tend to be associated with a company falling
  apart or one on its way to investment quality.
  The yields junk bonds pay are high at a high
  risk.
• Junk Bonds are most associated with the 1980s
  when lots of mergers and acquisitions occurred.
  To finance those expenses companies would sell
  junk bonds to the public with very high interest
  such that some investors would buy their
  low-quality bonds.

9
What is a Mortgage?

• A mortgage is a conveyance of an interest in
  property as security for the repayment of
  borrowed money.
• A mortgage loan is a loan to finance the purchase
  of real estate, usually with specified payment
  periods and interests rates.

10
Mortgage Loans

• A mortgagor (borrower) gives the mortgagee
  (lender) a lien as collateral for the loan.
• A lien is a legal claim against an asset which is
  used to secure the loan.
• The property is normally real estate- land,
  houses, buildings, but it could also be large
  items such as ships or huge machinery.
• Loans always come with interest rates and these
  rates vary with the type of mortgage one gets.

11
Types of Loans

• There are many different types of mortgage loans
  conventional, general, first, second, long term,
  open-end, close-end, etc
• Most people are familiar with fixed-rate
  mortgages and they are normally 15 or 30 years in
  length.
• The longer the term, the higher the interest
  rate.
• Variable rate? Subprime mortgage loans

12
Mortgage Requirements

• Getting a mortgage depends on
• -credit history -income
• -the lender -purpose
• -the state -amount loaned
• To get a mortgage one must talk to a mortgage
  broker.
• Questions?