- There are various types of bonds, including the following:
- Term bonds–These bonds all mature at the same time. For example, $100,000 of term bonds may all mature five years from today.
- Serial bonds–These bonds mature in installments at regular intervals. For example, a $500,000, five-year serial bond may mature in $100,000 annual installments over a five-year period.
- Secured bonds–These bonds give the bondholder the right to take specified assets of the issuer if the issuer fails to pay principal or interest.
- Debentures–These bonds are unsecured bonds that are not backed by assets. They are backed only by the creditworthiness of the bond issuer.
Let us identify how a specific type of bond is beneficial to a specific company. To do this, we need to share and identify some Fortune 500 companies.
Phillip, excellent information to share with the class.
Here is some additional information to illustrate Phillip’s point of view regarding bonds.
Class, your thoughts?
Large companies need large amounts of money to finance their operations. They may take out long-term loans from banks and/or issue bonds payable to the public to raise the money. Bonds payable are long-term debts issued to multiple lenders called bondholders, usually in increments of $1,000 per bond. By issuing bonds payable, companies can borrow millions of dollars from thousands of investors rather than depend on a loan from one single bank or lender. Each investor can buy a specified amount of the company’s bonds.
The face value is the amount a borrower must pay back to the bondholders on the maturity date. Face value is also called maturity value, principal amount, or par value.
Let us share some current events regarding bonds.
- BONDS CONT:
DISCUSS – Bonds are high risk. Many wonder way purchase a bond if the risk is volatile . Bonds are usually last resort of debt financing. As you shared the bond market seems profitable, but who is earning this profit, the bond issuer (or holder) or investor? The bondholder hopes for interest rates to decrease while the investor hopes interest rates will increase.
Depending whether a business is an investor or holder and whether the market is favorable will determine if the investment of a bond is profitable.
To add to this post and to Phillip’s comments, here is an article relating to the current bond situation of the U.S.
- CORPORATE BONDS:
Here is an article regarding Dell selling $20 Billion of bonds.
- Stock Company Investments:
A corporation is created by filing a certificate of formation with a state. The state authorizes the business to be organized as a corporation and grants the entity a charter or articles of incorporation. The corporation then prepares a set of bylaws, which provide the rules and procedures that the corporation will follow.
The corporate charter of a corporation identifies the maximum number of shares of stock the corporation may issue. Authorized stock is the maximum number of shares of stock that the corporate charter allows the corporation to issue. Authorized stock can be issued or unissued. Issued stock is stock that has been issued but may or may not be held by stockholders. A corporation issues stock certificates to the stockholders when they buy stock. A stock certificate is paper evidence of ownership in a corporation. The stock certificate represents the individual’s ownership of the corporation’s capital, so it is called capital stock. Outstanding stock is issued stock in the hands of stockholders.
Let us discuss some Fortune 500 companies which offer stocks. Please do not use a Fortune 500 company that has already been presented by your peers.
Game Stop Corporation is a retail company that may be around for awhile. Due to the company’s target market (kids, young adults, and gamers). After reviewing the company’s web site, I can see why some may invest in this company.
Class, your thoughts?