Bonds and Real Estate. Chapter 32

Transcription

1 Bonds and Real Estate Chapter 32

2 Bonds Characteristics Federal Bonds Bonds written promises to repay a loan with interest on a specific maturity date Municipal Bonds Corporate Bonds Junk Bonds

3 Bonds Characteristics Federal Bonds Coupon rate rate of interest on a bond Usually paid semi-annually or annually Municipal Bonds Corporate Bonds Junk Bonds

4 Bonds Characteristics Federal Bonds Bond discount difference between amount you pay and face value Municipal Bonds Corporate Bonds Junk Bonds

5 Bonds Characteristics Federal Bonds Rated from secure to speculative Generally, a safe investment Municipal Bonds Corporate Bonds Junk Bonds

6 Bonds Characteristics Federal Bonds Series EE Series I Other Municipal Bonds Corporate Bonds Junk Bonds Savings bonds debt securities issued by the U.S. Department of Treasury Considered one of the safest investments Purchase electronically Popular as gifts Tax advantages; no state or local taxes on interest earned and defer federal interest until cashed in or matured

7 Bonds Characteristics Federal Bonds Series EE Series I Other Municipal Bonds Corporate Bonds Junk Bonds Sold at face value: $50 for a $50 bond Accrual-type security interest added to bond monthly & paid when you cash it in Min term of ownership: 1 year Interest-earning period: 30 years Early redemption penalties: <5 years, forfeit 3 most recent months' interest >5 years, no penalty

8 Bonds Characteristics Federal Bonds Series EE Series I Sold at face value Fixed rate, adjusted for inflation Same ownership & redemption rules as EE Video Other Municipal Bonds Corporate Bonds Junk Bonds

9 Bonds Characteristics Federal Bonds Series EE Series I Other 3 Other types: 1. Treasury Bills 1 month to 1 year 2. Treasury Notes 2 years to 10 years 3. Treasury Bonds 10 years + The longer the maturity, the higher the rate Municipal Bonds Corporate Bonds Junk Bonds

10 Bonds Characteristics Federal Bonds Municipal Bonds Corporate Bonds Junk Bonds Municipal bonds - debt securities issued by states, cities, counties to finance projects: Building schools Highways or sewer systems Airports Usually semiannual interest payments Generally exempt from income tax

11 Bonds Characteristics Federal Bonds Municipal Bonds Corporate Bonds Junk Bonds Corporate bonds - debt securities issued by private & public corporations to finance: Building a new plant Purchasing equipment Growing the business Value fluctuates according to interest rates If you buy one with a high rate and interest rates fall, the corp. may be able to call your bond (buy it back)

12 Bonds Characteristics Federal Bonds Municipal Bonds Corporate Bonds Junk Bonds Junk bonds special category of corporate bonds that have a low or speculative rating and are issued by companies that don t have successful track records Offer a high rate of interest Not a very safe investment

13 Real Estate Types of Homes Buying a Home Home Values Home Equity Advantages Real estate land and anything attached to it, such as buildings or natural resources Was considered the safest investment Depending on demand, timing and location, property value may go up or down Disadvantages Income Property Undeveloped Property

14 Real Estate Types of Homes Buying a Home Home Values Home Equity Advantages There are different types of homes: Single-family homes Multi-unit housing (duplexes, townhouses, condominiums) Mobile homes Disadvantages Income Property Undeveloped Property

15 Real Estate Types of Homes Buying a Home Home Values Home Equity Advantages Disadvantages Income Property Undeveloped Property Most finance with a home mortgage loan Usually requires a down payment; used to be 20% Real estate agent person licensed to arrange the buying & selling of homes for fee Home inspection

16 Real Estate Types of Homes Buying a Home Home Values Home Equity Advantages Disadvantages Income Property A number of factors affect the value of a house: Size Condition Location Economy Undeveloped Property

17 Real Estate Types of Homes Buying a Home Home Values Home Equity Advantages Disadvantages Income Property A number of factors affect the value of a house: Size Condition Location Economy Undeveloped Property

18 Real Estate Types of Homes Buying a Home Home Values Home Equity Advantages Home equity amount on the house you own as opposed to how much you owe Equity increases: 1. As you pay off the mortgage 2. As the value of your home increases Disadvantages Income Property Undeveloped Property

19 Real Estate Types of Homes Buying a Home Home Values Home Equity Advantages Disadvantages Income Property Sense of security and stability Financial benefits: Interest charges on loan payments & property taxes are deductible If home value rises, you can make a profit Once the mortgage is paid off, no further financial obligation Undeveloped Property

20 Real Estate Types of Homes Buying a Home Home Values Home Equity Advantages Disadvantages Income Property Undeveloped Property Financial risk Saving for a down payment is difficult Property value may go down Less mobility; can take a long time to sell Costs: homeowner s insurance and property taxes Repairs and maintenance

21 Real Estate Types of Homes Buying a Home Home Values Home Equity Advantages Disadvantages Income Property Income property property owned and used to generate income Farmland Factories Office buildings Rental units Undeveloped Property

22 Real Estate Types of Homes Buying a Home Home Values Home Equity Advantages Undeveloped property unused land intended only for investment purposes Usually isn t cleared; no utility services Inexpensive to buy Income comes from the sale Disadvantages Income Property Undeveloped Property