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 $1,000 such that it will provide current income and increase the diversification of his assets. He has heard a lot about municipal 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 municipal bonds. Friend: Can you explain to me the basics of how a municipal bond will increase my current income? You: Under a standard bond agreement, if you were to purchase a 10-year, $1,000 municipal bond with a 4% coupon, you would receive in interest each year, and at the end of the 10-year period, you would receive the par value of . Friend: OK, and am I guaranteed to receive these interest payments and the par value? You: Well, that depends. Within the category of municipal bonds, there are both general obligation bonds, which guaranteed by the municipality, and bonds, which fund specific projects and are repaid Friend: Are there any other general features I should be aware of? You: Municipal bonds tend to have a relatively return than other types, in part due to the fact that unlike other bonds, the interest income is federal income taxes. The return also depends on whether the bonds are callable, meaning that the issuer can retire the bond (by paying you back and ceasing to pay interest payments) at any point before the maturity date. Friend: Why would an issuer want to retire a bond early? Friend: OK, and am I guaranteed to receive these interest payments and the par value? You: Well, that depends. Within the category of municipal bonds, there are both general obligation bonds, which guaranteed by the municipality, and bonds, which fund specific projects and are repaid Friend: Are there any other general features I should be aware of? You: Municipal bonds tend to have a relatively return than other types, in part due to the fact that unlike other bonds, the interest income is federal income taxes. The return also depends on whether the bonds are callable, meaning that the issuer can retire the bond (by paying you back and ceasing to pay interest payments) at any point before the maturity date. Friend: Why would an issuer want to retire a bond early? You: Suppose that 6 months after you purchase the bond, the market rate for interest on this type of bond falls to 2%. This will cause the From the issuer's perspective, the lower interest rate means that he or she would be issuing new bonds at this lower rate than continuing to pay you 4%. Friend: Got it. Thanks for your help! You: Any time! 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 $1,000 such that it will provide current income and increase the diversification of his assets. He has heard a lot about municipal 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 municipal bonds. Friend: Can you explain to me the basics of how a municipal bond will increase my current income? You: Under a standard bond agreement, if you were to purchase a 10-year, $1,000 municipal bond with a 4% coupon, you would receive in interest each year, and at the end of the 10-year period, you would receive the par value of . Friend: OK, and am I guaranteed to receive these interest payments and the par value? You: Well, that depends. Within the category of municipal bonds, there are both general obligation bonds, which guaranteed by the municipality, and bonds, which fund specific projects and are repaid Friend: Are there any other general features I should be aware of? You: Municipal bonds tend to have a relatively return than other types, in part due to the fact that unlike other bonds, the interest income is federal income taxes. The return also depends on whether the bonds are callable, meaning that the issuer can retire the bond (by paying you back and ceasing to pay interest payments) at any point before the maturity date. Friend: Why would an issuer want to retire a bond early? Friend: OK, and am I guaranteed to receive these interest payments and the par value? You: Well, that depends. Within the category of municipal bonds, there are both general obligation bonds, which guaranteed by the municipality, and bonds, which fund specific projects and are repaid Friend: Are there any other general features I should be aware of? You: Municipal bonds tend to have a relatively return than other types, in part due to the fact that unlike other bonds, the interest income is federal income taxes. The return also depends on whether the bonds are callable, meaning that the issuer can retire the bond (by paying you back and ceasing to pay interest payments) at any point before the maturity date. Friend: Why would an issuer want to retire a bond early? You: Suppose that 6 months after you purchase the bond, the market rate for interest on this type of bond falls to 2%. This will cause the From the issuer's perspective, the lower interest rate means that he or she would be issuing new bonds at this lower rate than continuing to pay you 4%. Friend: Got it. Thanks for your help! You: Any time
