Corporate Finance: Core Principles and Applications.
Respond to at least two peers (see below). Your responses should be substantive and could involve one or more of the following:
o Debate the topic. o Ask a probing question. o Share an insight you gained from your peer’s post. o Make a suggestion. o Share a personal experience related to the topic. o Expand on your peer’s post
The replies should be at least 50 words minimum
When reading about the many different types of bonds, I found government bonds to be the most interesting. Whenever our government needs more funding they can sell treasury notes to the public. I like that the ranges for this type of bond is 2 to 30 years, but they can be paid off at a earlier date. It is also interesting that they are exempt from state income taxes. Since there is no default risk due to backing from the U.S. government and no state taxes, they have a higher maturity yield (Ross, Westerfield, Jaffe & Jordan, 2018).
One of the downsides of government bonds is that they return a typically low rate of return and have minimal gain opportunities (Investopedia.com, 2018). Someone who is looking to make large amounts of money quickly probably should not go this route.
Government Bonds. (n.d.). Retrieved on July 19, 2018, from http://www.investopedia.com
Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2018). Corporate Finance: Core Principles and Applications. (5thed). New York, NY: McGraw-Hill Education.
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The main type of bond that interest me is a Government Bond. This bond differs from other bonds because it is, “almost always callable” (Ross et al., 2018, pg. 144). This means that the bond can be paid off before its maturity date. This is beneficial to a company because they can pay a debt off early which would result in less interest. Also, it differs because unlike other bonds, “their coupons are exempt from federal income taxes” (Ross et al., 2018, pg. 144). This means that they will have a higher yield to maturity because they are exempt from the tax break that other bonds have.
Interest rates have the same effect on this type of bond that they do on others. The higher the interest rate the less interested investors will be towards this bond. In contrast, the lower the interest rate the more attractive this bond will look to the investor. Given that the yield on the government bond will be greater than other bonds, the interest rate can be a little higher than expected with these bonds.
Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2018). Corporate Finance: Core Principles and Applications. (5th ed). New York, NY: McGraw-Hill Education.