Description - What is a Bond?
This lesson will help you research bonds on the Internet for investment purposes.

Vocabulary
  • Default: Failure to pay principal or interest when due. Defaults can also occur for failure to meet non-payment obligations, such as reporting requirements, or when a material problem occurs for the issuer, such as a bankruptcy. Fixed-Income Investments: Pay interest on a set schedule. Fixed-Income Investments include corporate, municipal, agency, and U.S. Treasury bonds.
  • High-Yield Bonds: To attract investors, the issuers of these bonds pay a higher rate of interest than investment grade bonds with the same maturity. They are rated below investment grade bonds and are also called “Junk Bonds.” Issuer: An entity which issues and is obligated to pay principal and interest on a debt security. Interest rate: Compensation paid or to be paid for the use of money. Interest is generally expressed as a percentage rate. (Also referred to as coupon rate)
  • Investment Grade Bonds: Bonds that are sold by a very reliable issuer, the government, a large corporation, or a government agency that is most likely to repay the loan and the interest as promised. IOU: Means exactly as it , “I Owe You.” It is an acknowledgment of a debt.
  • Maturity: The date when the principal amount of a security is payable Par value: The principal amount of a bond or note due at maturity.( also referred to as face value) Prepayment: The unscheduled partial or complete payment of the principal amount outstanding on a mortgage or other debt before it is due. Principal: The face amount of a bond, payable at maturity (also referred to as face or par value) Trade date: The date when the purchase or sale of a bond is transacted.

Objectives
After this activity you need to be able to…
  • Define the terms: Bond and Investment Grade Bond
  • Identify and define four types of bonds. Understand bonds as an investment tool.
Task

Assessment
Be able to discuss in small group discussion the knowledge you individually gained.