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30 Cards in this Set
- Front
- Back
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T-Bills T-Notes T-bonds |
Bills - 1/3/6/12 month Maturity Notes 1-10 years Bonds - 10 years and more Today's treasury notes not callable |
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Translate 6s 15 22 |
Callable 2015 matures in 2022 |
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Non Interest Bearing Treasury Issues T-Bills |
They are purchased at annual discount yield - they are purchased at the highest of all bids accepted at weekly auction lowest cost investor . Mature at Face Value |
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Zero Coupon Bonds
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Can be owned my minors purchased $25-$5000 penalty if redeemed in first 5 years |
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TIPS
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Coupon Rate will ALWAYS remain the same Amount of principal will increase with inflation 6% $10,000 govt bond: $600 year inflation increase 10% 6% $11,000 govt bond: $660 |
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STRIPS
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Not issued by govt: us govt notes and bonds bought by B/D have int and principal separated sold Bonds are bought at discount but are actually zero discount bonds The holder receives interest at maturity but must pay for it yearly No Capital gains at maturity |
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Taxation of discount Bonds Corp & Muni / Zero coupon
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If bond os purchased at original issue discount- each year part of the appreciation must be claimed as interest income If sold prior to maturity, any gain would be part ordinary interest income & Capital Gain> |
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Discount , Bond and muni show calculation Primary Market Purchase at sold prior to maturity Zero Coupon |
Buy Corporate bond at $900 Matures at $1000 1000-900= 100 ten year bond 100/10 = $10 taxed as ordinary income Buy Corp bond $600 maturity ten years and sell in one for $700 1000-600=400 400/10=$ 40 a year ordinary income 600+40= 640-700= $60 as capital gains |
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For govt, corporate, and muni bonds purchased in secondary market Zero Coupon |
All interest bearing bonds purchased at a discount in secondary market , when held to maturity have no capital gain. It all treated as ordinary income and taxed. Buy bond at $900 matures at $1000 $100 is treated as ordinary income. |
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Compound and Accreted Value
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The value of a zero coupon bond at any given point in time based on the principal and appreciation compounded over time: Requires- dated date/ mat date/ amount of principal paid originally/ length of time held Yield not needed- that is what you are figuring |
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Taxation of Premium Bonds for: Govt/ Corp/ Muni Bonds |
All bonds purchased at a premium when held to maturity have no capital loss Govt and corporate bond can off set the amortized premium against each years interest. For all bonds if they are held to maturity the loss s not deductible as a capital gain |
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Premium Bond example : 8% bond for 1090.00 Matures 15 years later |
No loss What can investor do regarding loss? 1090-1000= 90 / 15yrs = $6.00 deduction from interest each year interest $80 - 6 = $74.00 added to income as interest taxed at 28% |
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Taxation of Bond Interest: |
Muni - Taxable by other states but exempt from taxation by the fed govt and by the state the bond is issued by |
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Farm Loan Issuers |
Farm loans are loans issued by one agency but backed by debt issues of one of the three other agencies Fed Intermediate Credit Bank Fed Land Bank Bank for Co-Ops Fed Farm Consolidation systems |
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The features of the Farm Loan
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Debt Issues that are backed by the mortgages of the farmer Discount notes and bonds Farm credit loan is state and local tax exempt |
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SALMAE
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Student tuition Taxed by State and FED |
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Public housing Authority Bands are for
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Fed tax exempt and may be exempt from state and local taxes where applicable |
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GNMA FNMA Freddie Mac |
All taxable by both State and Fed GNMA is the only backed by us govt |
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GNMA Definition |
Provide monthly pass thru of principal and interest from payments on home loan / Monthly Issues debt securities for VA and FHA home loans min 25,0000 Sold at yield that is 50 Basis points below the pool of mortgages |
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FNMA Definiton
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Issues debt securities for VA, FHA and conventional home loans min 25,0000 Pays interest semi-annually FNMA also issues stock for their own use |
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Freddie Mac Definition
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Semi-annual interest payments $1000 minimum investment FOr loans for low income/minority home buyers/community projects and other conventional loans Callable |
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CMO's basic Definition
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***For test CMO's are deriviatives Mtg backed bonds that separate principal Loans for 15/20/25/30 year mtgs GNma/FNMa/ Freddie repackeaged into new security |
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CMO's Interest and how can issue them |
Interest can be paid monthly / quarterly/ semiannually most common monthly Issued by broker dealers who must be registered with the SEC Different life expectancy based on prepayment speed assumption called tranches |
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PSA's
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Predictable pre-payment speeds |
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Plain Vanilla CMO's |
prepayment- tranched can be paid of for more than one year post payments/ payments postponed not [aid off on time |
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TAC CMO
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If the amt of principal is not paid as expected then part of the main tranche will not be paid |
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PAC CMO
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PAC tranches have less pre-payment and less extension risk. |
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TAC vs PAC
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PAC- Low prepayment and late payment risk |
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Z Tranche
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This is basically a zero coupon bond Not paid until all other payments included companion payments are paid. Least likely to be paid early |
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PAC/TAC/GNMA/FNMA and plain Vanilla CMO's all have these things in common
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All Prices fluctuate inversely with interest rates All Debt Securities move with changes in interest rates |
