Podcast
Questions and Answers
What primarily differentiates municipal bonds from corporate bonds?
What primarily differentiates municipal bonds from corporate bonds?
Which statement about corporate bonds is accurate?
Which statement about corporate bonds is accurate?
How do life insurance companies and pension funds benefit from investing in corporate bonds?
How do life insurance companies and pension funds benefit from investing in corporate bonds?
What is the primary method used for bringing corporate bonds to market?
What is the primary method used for bringing corporate bonds to market?
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What distinguishes a public offering of bonds from a private placement?
What distinguishes a public offering of bonds from a private placement?
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Which characteristic of corporate bonds is likely to attract investors such as households?
Which characteristic of corporate bonds is likely to attract investors such as households?
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During a competitive offering of bonds, what determines the winning bid?
During a competitive offering of bonds, what determines the winning bid?
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Which of the following is NOT a feature of registered corporate bonds?
Which of the following is NOT a feature of registered corporate bonds?
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Why is the municipal bond market considered unique compared to other capital markets?
Why is the municipal bond market considered unique compared to other capital markets?
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What motivates corporate issuers to use an investment banking firm during bond issues?
What motivates corporate issuers to use an investment banking firm during bond issues?
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Study Notes
State and Local Government Bonds (Municipal Bonds)
- Encompass all state and local government issues (cities, counties, schools, transit).
- One of the largest fixed-income markets.
- Distinctive due to a vast number of issuers.
Corporate Bonds
- Debt contracts with periodic interest payments and principal repayment at maturity.
- Two types:
- Bearer bonds: Coupons attached, holder presents for payment.
- Registered bonds: Owner recorded, payment mailed.
- Primarily held by:
- Life insurance companies.
- Pension funds (private and public).
- Households.
- Foreign investors.
- Attractive to insurance/pension funds due to stable cash flows and long-term liabilities, allowing matching maturities to reduce interest rate risk.
Primary Market for Corporate Bonds
- Corporate bonds issued through:
- Public sale: Offered to all interested buyers in the open market.
- Private placement: Sold privately to a limited number of investors.
- Public sale methods:
- Underwritten by investment banking firms: Purchase bonds from the issuer, then resell them to investors.
- Competitive sales (public auction): Issuer advertises for bids, issue goes to lowest bidder (lowest borrowing cost).
- Negotiated offering: Contractual agreement between underwriter and issuer, giving underwriter exclusive rights.
- Underwritten by investment banking firms: Purchase bonds from the issuer, then resell them to investors.
- Private placements arose to address Security and Exchange Act requirements. The act forces firms to disclose information, protecting investors.
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Description
Explore the key concepts surrounding municipal and corporate bonds in this quiz. Understand the differences between state and local government bonds, the types of corporate bonds, and the primary market mechanisms for issuing corporate debt. Perfect for those interested in finance and investment strategies.
