A new bond you are considering buying has a face value of $1,000, an interest rate of 5 percent, and a maturity date eight years away. The bond is currently selling at 104. What is the current yield? What amount of interest would you earn in that time period?

Match the terms with the definitions. Some terms may not be used.

a. agency bond

b. bond redemption

c. callable bond

d. convertible bond

e. debenture

f. face value

g. general obligation (GO) bond

h. municipal bond

i. revenue bond

j. secured bond

k. zero-coupon bond

__A bond issued by a state or local government

Match the terms with the definitions. Some terms may not be used.

a. bond default

b. bond fund

c. bond listings

d. bond rating

e. hedge

f. investmentgrade bond

g. junk bond

h. primary market

i. secondary market

__Any investment or action that helps offset against loss from another investment or action

Why would investors choose a zero-coupon bond? Explain why zero-coupon bonds are often considered to be the riskiest form of bond investment.

Susanne has $10,000 to invest. She is considering buying investmentgrade corporate bonds because interest rates on bonds are somewhat higher than on CDs. She has rejected stocks because of the risk involved. Susanne feels that interest rates will rise, but in the meantime, she needs a relatively safe place for her money. Explain to Susanne how bond prices are affected by interest rates. Is she making the right decision? Explain.

Match the terms with the definitions. Some terms may not be used.

a. agency bond

b. bond redemption

c. callable bond

d. convertible bond

e. debenture

f. face value

g. general obligation (GO) bond

h. municipal bond

i. revenue bond

j. secured bond

k. zero-coupon bond

__The amount the bondholder will be repaid at maturity

It is illegal for firms selling bonds to mislead or defraud investors. Investment firms have an obligation to inform their customers about the risks associated with the bonds. The Financial Industry Regulatory Authority (FINRA) is the largest non-governmental agency that regulates bonds (and stocks). Use the Internet to learn more about FINRA. How does it help enforce federal securities laws and protect investors?

Match the terms with the definitions. Some terms may not be used.

a. bond default

b. bond fund

c. bond listings

d. bond rating

e. hedge

f. investmentgrade bond

g. junk bond

h. primary market

i. secondary market

__A bond with a low rating or no rating at all

Blake is considering using payroll deductions to pay for a Series EE savings bonds. If he could set aside $10 per month, how long would it take to buy a$500 EE bond? Explain to him how savings bonds work.

Visit the TreasuryDirect website (www .treasurydirect.gov) and find the answers to these questions:

a. What are STRIPS?

b. How can you buy treasuries from this site?

c. How can you replace a lost, stolen, or destroyed savings bond?

Explain why you might choose a municipal bond paying 5 percent over a corporate bond paying 7 percent.

Explain how a bond fund lowers the risk of owning bonds, which is already considered safer than stock.

Brian has narrowed his choice of bond purchases to two: Me/Mac is a $70,000, 7 percent corporate bond selling for 102; BrgPort is a$10,000, 5 percent municipal bond selling for 95. Compute the current yield of each bond and advise him about which bond to choose.

In June $2009$, corporate bonds of General Motors (GM) were at a default value of 12.5 cents on the dollar. The price fell because of the poor credit position of GM and the impending bailout needed from taxpayers. What happens when a bond defaults? What did GM do? What is the current rating for GM bonds?