Business Economics test

An investor wants to support the increase of water power in America and would like to purchase a bond from the Tennessee Valley Authority. What type of bond would he purchase? why?

Agency Tennessee Valley Authority issues bonds to raise funds under Agency Bonds

A home mortgage company backed by the government wants to raise money for more first time home mortgage loans. Which type of bond would the government sponsored agency issue? Why?

Agency backed by the government

Corporate Bonds (definition from worksheet)

Bonds are major sources of corporate borrowing. he most common type of corporate bonds are backed by the general credit of the corporation. Asset-backed bonds are backed by specific corporate assets, such as property or equipment

Why is an investment grade bond considered a "safe" investment?

Corporations and governments that are deemed trustworthy issue them

Municipal Bonds (definition from worksheet)

Millions of bonds have been issued by state and local governments. General obligation bonds are backed by the full faith and credit of the ISSUER. Revenue bonds by the income generated by the particular project being financed

Agency Bonds (definition from worksheet)

Some government sponsored corporations are privately owned (like Fannie Mae and Freddie Mac) and certain federal government agencies (like Ginnie Mae and Tennesee Valley Authority) issue bonds to raise funds either to make loan money available or to pay off new projects

How can an investor make money by buying a bond?

They get paid interest when they get their return

U.S. Treasuries (definition from worksheet)

Treasury notes: an intermediate-term obligation of the U.S. Treasury having a maturity period of one to ten years and paying interest semiannually. Bills, are short-term obligations of the U.S. Treasury having a maturity period of one year or less and sold at a discount from face value

An investor wants to make the safest possible bond investment and plan to collect the interest for ten years. Which type of bond should the investor purchase? Why?

U.S. Treasury safest/most trustworthy, they have a 10 year maturity period

How is a bond like an IOU?

You loan money, and later you'll get it back

municipal bonds are backed by

city and local governments

agency bonds are backed by

corporate BACKED by government

A large corporation wants to expand into Asian markets. They want to issue a bond and a plan to guarantee the bond with land holdings in Latin America, so what type of bond would they issue? Why?

corporate bond these bonds are backed by specific corporate assets, like property and equipment

corporate bonds are backed by

corporation

A major corporation wants to issue a bond; they have a reputation for being a trustworthy company. They want to use their credit rating to guarantee the bond. What type of bond would they issue? Why?

corporation backed by general credit of the corporation

The local governments want to build a new bridge to connect two parts of a growing city. Which type of bond would a local government issue? Why?

municipal backed by cities and local governments

U.S. Treasury bonds are backed by

the government (most trustworthy)