Question

Assignment Chapter 12- Investing in Stocks and Bonds Understanding How Bonds Work as Investment Vehicles From an investment point of view, bonds are considered to safer than stocks. They are generally of lower risk offering lower but guaranteed returns unlike stocks. As an investor in bonds, you would lend money to the issuer of the bonds also known as fixed income securities. It is important to understand what bonds are and how they are work as investment vehicles. Suppose a friend of yours is looking to invest $5,000 such that it will provide current income and increase the diversification of his assets. He has heard a lot about corporate bonds but wants to learn more before purchasing them. Fill in the blanks in the following conversation to give your friend the appropriate information regarding corporate bonds. Friend: Can you explain to me the basics of how a corporate bond will increase my current income? Under a standard bond agreement, if you were to purchase a 10-year, $5,000 corporate bond with a 8% coupon, you would receive period, you would receive the par value of You: in interest each year, and at the end of the 10-year Friend:OK, and am I guaranteed to receive these interest payments and the par value? Well, many corporate bonds are issued as debentures, which have that they corporate bond, known as a convert them into a certain amount of stock. You: standing, meaning backed by a legal daim on some specific property. A special type of bond, comes with a provision allowing you to Friend: Are there any other general features I should be aware of? Corporate bonds can be issued in a wide variety of forms. As far as general features go, they tend to come in denominations of You: and many have call provisions so that the issuers

Answer 1

FILL IN THE BOX

1. $30

2. $1000

3. are usually

4.Revenue

5. by third party/special authorities

6. Higher

7. Exempt/excludable under

8. Bond prices

9. Increase

10. Willing