BONDS

Are corporate bonds taxed?

Interest payments are taxed as ordinary income at the federal, state, and local level.

Capital gains are taxed if they’re sold for profit.

Is interest from municipal bonds taxed?

They’re generally exempt from federal taxes.

Are T-bonds taxed?

Taxed federally, tax exempt at the state and local level.

Do Revenue bonds require voter approval?

No

Are revenue bonds constrained by a statutory debt limit?

No

Which bonds tend to be volatile?

Low or zero-coupon rates with long-term maturities.

Which factor tends to increase the volatility of a bond's price?

Longer time to maturity.

Which feature allows a bond issuer to pay off bondholders prior to the bond's maturity date?

Call feature

Collateral trust bonds are backed by?

Portfolio of other securities and mortgage bonds backed by real estate.

Term Bonds

Principal is repaid at once.

Serial Bonds

Portions of the principal to mature at intervals over a period of years until the entire balance has been repaid.

Balloon Bonds

The issuer repays part of the bond's principal before the maturity date but pays off the major portion of the bond at final maturity.

Nominal Yield

Set at the time of issue.

How do you calculate current yield?

Annual coupon payment divided by market price.

Yield to Maturity

Annualized return of the bond if held to maturity.

What does “basis of” mean?

Yield to maturity

Is the yield higher or lower when traded at a discount?

Higher.

Is the yield higher or lower when traded at a premium?

Lower.

Mortgage Bonds

Backed by real estate that is owned by the corporation.

Collateral Trust Bonds

Backed by a portfolio of securities held in trust to secure the loan.

Guaranteed Bonds

Issuer is responsible but are further backed by a third party should the issuer default.

Income Bonds

Make interest payments when the company has enough income and the board authorizes the payments.

Are income bonds suitable for investors who want income?

No.

Are T-bills issued at a discount or premium?

Discount.

When do T-bills mature?

At par.

Do T-bills have pay interest?

No.

Do T-notes pay interest?

Semi-annually.

Do T-bonds pay interest?

Semi-annually.

Do STRIPS pay interest?

Only at maturity.