go to bonds instead

• debt security
• represents the debt of the issuer (government or corporation) to the bondholder (purchaser)
• interest is tax deductible for the issuer
• Current Yield = 100 x (Interest for 1 Year)/(Current Market Price)

Government Bonds

• government bonds have very low risk
• the primary form of government financing
• a T-Bill is not a bond

Canada Savings Bonds (CSBs)

• can be bought by individuals, estates, and some trusts
• limits on purchase amounts
• minimum interest rate guaranteed for one or more years
• cashable any time and any bank
• not transferable (registered in the name of the buyer)
• not assignable, but can be used as collateral
• buyers must be Canadian residents with a Canadian address
• sold from October to April
• types of interest
  • regular: paid each November 1
  • compound: report in the year earned, not in the year received
• cashing
  • before January 31 of the year following purchase: receive the face amount without interest
  • thereafter: receive interest for each full month elapsed since purchase

Government (Marketable) Bonds

• forms
  • bearer: the bearer can sell and/or collect interest from the coupons
  • registered: in the name of the owner of the bond
• term
  • short-term (or money market): due in three years or less
  • medium-term: due in three to 10 years
  • Long term: due in more than 10 years

Government of Canada Real Return Bonds

• linked to CPI
• interest calculated on the face amount plus CPI since issue
• redemption value at maturity = original face amount + inflation since issue

Canada Premium Bonds

• like Canada Savings Bonds, but higher interest rates at issue and less flexibility
• redeemable without penalty within 30 days of each anniversary

Provincial Bonds

• denominations: $500, $1000, $5,000, $10,000, $25,000
• can only be purchased by residents of the problems
• only sold at certain times of the year
• redeemable every six months

Municipal Bonds

• types
  • term debentures (mature at end of term)
  • serial bonds (a portion matures each year)
• generally not callable

Corporate Bonds

• a form of corporate debt with corporate assets pledged as security
• issuer (borrower) promises to
  • pay the bondholder a specified amount of interest for a specified length of time
  • repay the loan at maturity

Bond Ratings

Investment grade bonds (highest to lowest)

1. Aaa
2. Aa
3. A
4. Baa