Notes

A bond is a promise by one entity, often a government, to pay the holder of the bond a certain amount of money at one or more specified times.
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http://contentlaunch.ple.platoweb.com/content/edl/personal_finance/assets/glossary.html#coupon vocab
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What are the four components of any bond?:The four components of any bond are the principal, coupon, yield, and maturity.
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Steven owns a $1,000 bond with a 5% coupon that has four years until maturity. What is the bond's yield?;The total yield of the bond is $200.
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The interest rates on State of California bonds have been increasing. What does this most likely mean?:Lending money to the State of California is becoming riskier, or the state may be issuing bonds with longer periods till maturity.
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Which of the following types of bonds are not issued by governments?:corporate bonds
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Which of the following types of bonds is least likely to be taxed on the investment income it earns?:municipal bonds
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Which of the following statements is NOT true of U.S. Treasury bonds?:Each year, the U.S. Treasury issues more bonds than the preceding year.
True:
Most experts believe that Treasury bonds will never default.
Treasury bonds are issued by the federal government.
Treasury bonds are referenced when measuring the risk of other bonds.
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Describe Treasury Inflation Protected Securities (TIPS) and when they might be a good investment: TIPS are variable bonds that increase their payout as the rate of inflation increases. TIPS are a good investment when inflation looks like it might suddenly surge.
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What is the difference between a zero coupon bond and a variable rate bond?: Zero coupon bonds do not pay interest, whereas variable rate bonds do.
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Describe when it would be advantageous for an investor to put a puttable bond. :When interest rates rise, it can be advantageous to put a puttable bond so the money can be reinvested in higher paying bonds or other investments.
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Describe the relationship between bond coupons and risk. : When bond coupons increase, the risks of owning the bond increase.
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Define inflation risk. : Inflation risk is the risk that by the time a bond is redeemed, the money spent on the bond can buy less than before being invested in the bond.
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Why are U.S. Treasury bonds considered the safest bond investments? : Treasury bonds are backed by the taxes of the federal government; as a last resort, the federal government can print new money to pay for the bonds.
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Recall the formula for the basic yield of a bond:
Coupon × Principal × Years to Maturity = Yield
The total value of a bond to be sold is given a value reflecting how much the buyer expects to earn on it.
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When investing in bonds that pay 3% annually, roughly how many years will it take to double the initial investment? : 24 years
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A non-TIPS bond pays an interest rate of 5% annually. Inflation is predicted to run approximately 2% annually over the life of the bond. What is the approximate real interest rate of the bond? : 3%
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Evaluate the earnings of the following bonds over the course of five years: a fixed interest bond paying 2% annually on $4,000 principal and a $4,500 zero coupon bond sold for $4,000. : The zero coupon bond earns more.

yield for a fixed interest bond------------- price × coupon × years to maturity
place in the values for the particular bond:------------ ($4,000) × (2%) × (5 years)
simplify by removing signs and converting percent to decimal form------- 4000 × 0.02 × 5
compute the yield----------------------------- $400

yield for a zero coupon bond:---------------- face value - purchase price
place in the values of the particular bond-------------------- $4,500 - $4,000
compute the yield ------------------ $500