Understanding How Bonds Work as Investmerit Vehicles From an investment point of view, bonds are generally considered to begsafer investments than stocks. They are generally low risk low return irivestments, unike stocks, As an investor in bonds, you would lend maney to the issuer of the bonds. It is important to understand what bonds are and how ther work as ifvestment vehicles: Suppose a frend of yours E Tooking 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 fearn more before purchasing them. Fill in the blanks in the following conversation to give your friend the appropriate information feparding corporate bonds, FRIEND; Can you Explain to me the basics of how investing in a corporate bond will increase miy current income? You: Under a standard bond agrement, if you were-to purchase a 10 yeac, $5,000 corporate bond wath a 6% coupon, you would receive in interest each year; and at the end of the 10 -year period, you would recerve the par value of FRIEND: OK, and arn f guaranteed to receive these interest payments and the par value? Yoit weth, some corporate bonds are issued as debentures, which have standing, meating that they ciaim on some specafie progerty. A special type of corperate bond, ionown as a bond, comes with a provision allowing you to empert them into a certain amount of rocki. Fh1L.WDi Mre there any other geriesal features i shewikd be aware of? FRIEND: OK, and am 1 guaranteed to receive these interest payments and the par value? YOU: Well, somi corporate bonds are issued as debentures, which have claim on some specific property. A special type of corporate bond, lenown as a backed by a leo? you to convert them into a certain amount of stock. FRIEND: Are thege ariy other general features 1 should be aware of? YOU: Corporate bonds can be issued in a wide variety of forms. As far as general features go, they tend to come in denominations of 4 and many have call provisions so that the issuers can'c retire the bond (by paying you brek and ceensing to pay interest payments) within the hist 5 or 10 years of the issue date. Such bonds's Hiff ND: Why would an issuer want to retire a bond early? You: Suppose that 6 months after you purchase the bond, the market nate for interest on this type of bond falls to 4.00 w. This will cause the to From the isvuer's perspective, the lower inferest rafe means that he of shim would be off itserung? new borids at this fower tate then continang to pay you 6\%s. FPCEEAF Ciot it. Thanks for your helpt Yout Any timel Understanding How Bonds Work as Investmerit Vehicles From an investment point of view, bonds are generally considered to begsafer investments than stocks. They are generally low risk low return irivestments, unike stocks, As an investor in bonds, you would lend maney to the issuer of the bonds. It is important to understand what bonds are and how ther work as ifvestment vehicles: Suppose a frend of yours E Tooking 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 fearn more before purchasing them. Fill in the blanks in the following conversation to give your friend the appropriate information feparding corporate bonds, FRIEND; Can you Explain to me the basics of how investing in a corporate bond will increase miy current income? You: Under a standard bond agrement, if you were-to purchase a 10 yeac, $5,000 corporate bond wath a 6% coupon, you would receive in interest each year; and at the end of the 10 -year period, you would recerve the par value of FRIEND: OK, and arn f guaranteed to receive these interest payments and the par value? Yoit weth, some corporate bonds are issued as debentures, which have standing, meating that they ciaim on some specafie progerty. A special type of corperate bond, ionown as a bond, comes with a provision allowing you to empert them into a certain amount of rocki. Fh1L.WDi Mre there any other geriesal features i shewikd be aware of? FRIEND: OK, and am 1 guaranteed to receive these interest payments and the par value? YOU: Well, somi corporate bonds are issued as debentures, which have claim on some specific property. A special type of corporate bond, lenown as a backed by a leo? you to convert them into a certain amount of stock. FRIEND: Are thege ariy other general features 1 should be aware of? YOU: Corporate bonds can be issued in a wide variety of forms. As far as general features go, they tend to come in denominations of 4 and many have call provisions so that the issuers can'c retire the bond (by paying you brek and ceensing to pay interest payments) within the hist 5 or 10 years of the issue date. Such bonds's Hiff ND: Why would an issuer want to retire a bond early? You: Suppose that 6 months after you purchase the bond, the market nate for interest on this type of bond falls to 4.00 w. This will cause the to From the isvuer's perspective, the lower inferest rafe means that he of shim would be off itserung? new borids at this fower tate then continang to pay you 6\%s. FPCEEAF Ciot it. Thanks for your helpt Yout Any timel