This presentation provides readers with an introduction to bonds and their many characteristics. Topics discussed such as types of bonds, bond trading, valuing bonds and much more are highlighted in this presentation and can be further discussed on our site www.finpipe.com.

1. Basics on Bonds
What you should know

2. Bonds are ‘fixed income’ investments that
have a fixed interest rate or coupon
payable on the principal amount, usually
$100.

3. • Bonds
• Mid-term notes
• Debentures
• Mortgages
• Asset-backed securities
• Savings bonds
• Guaranteed investment contracts (GICs)
• Certificates of deposits (CDs)
There are many different types of fixed
income investments:

4. Types of bonds are
based on a number of
factors.
How they offer payouts
Their legal status
Kinds of currency or assets
they are based on

5. Government Bonds
• Bonds issued by a government entity rather than a
private issuer such as a corporation
• Considered safest bond to invest in
• Safest due to relative stability and reliability of national
economies

6. Corporate Bonds
• Similar to most bonds
• Differ in that they are sold to investors by independent
companies instead of banks or government issuers
• Advantages: allow businesses to receive investment
capital without having to offer shares

7. Convertible Bonds
• Gives the holder the right to "convert" or exchange the
par amount of the bond for common shares of the issuer
at some fixed ratio during a particular period
• Conversion feature also gives them features of equity
securities

8. Foreign Currency Bonds
• A bond that is issued by an issuer in a currency other
than its national currency
• Different currencies make them more attractive to buyers
as they can take advantage of international interest rate
differentials
• Can be "swapped" or converted in the swap market into
the home currency of the issuer

9. Junk Bonds
• Get their name from their characteristics ‘junk’
• Bonds issued by a company that is considered to be a
higher credit risk
• Chance of default with junk bonds is higher than for
other types of bonds

10. Extendable and
Retractable Bonds
• Have more than one maturity date
• Extendible: gives its holder the right to extend the initial
maturity to a longer maturity date
• Retractable: gives its holder the right to advance the
return of principal to an earlier date than the original
maturity

11. Inflation-Linked Bonds
• Bond that provides protection against inflation
• Most are principle indexed
• This means that their principal is increased by the
change in inflation over a period

12. Zero Coupon Bonds
• A fixed income security that is created from the cash
flows that make up a normal bond
• Similar to a Treasury Bill or "T-Bill".
• This means the investor pays something up front in
exchange for a promise to receive $100 on the maturity
date

13. Mortgage-Backed Security
• A security that is based on a pool of underlying
mortgages
• Based on mortgages that are guaranteed by a
government agency for payment of principal and a
guarantee of timely payment
• Concentrates on the nature of the underlying payment
stream, particularly the prepayments of principal prior to
maturity

14. Asset-Backed Securities
• Bonds that are based on underlying pools of assets
• A special purpose trust or instrument is set up which
takes title to the assets and the cash flows are "passed
through" to the investors in the form of an asset-backed
security
• Types of assets that can be "securitized" range from
residential mortgages to credit card receivables

15. The value of a bond depends
on the size of its coupon
payments, the length of time
remaining until the bond
matures, and the current level
of interest rate.

16. Bond Trading is an important aspect of
global economic markets. Bonds generally
can trade anywhere in the world that a buyer
and seller can strike a deal. There is no
central place or exchange for bond trading,
as there is for publicly traded stocks.

17. Bond Terminology

18. Coupon
The percentage interest to be paid on a bond in
the course of a year. The interest is usually payable
semi-annually, although it can also be payable monthly,
quarterly, and annually

19. Maturity
The date the bond will be redeemed or paid off

20. Price
The quoted price is usually based on the bond
maturity at a price of par, or 100.00

21. Yield
The term "yield" usually means "yield to maturity."
The yield to maturity takes into account the
coupon payment, and considers whether the bond is
maturing at a different price than its current price

22. For more financial education
regarding bonds, visit
www.finpipe.com