WEBVTT

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[MUSIC PLAYING]

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Bonds are units of debt issued
by companies or governments

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that are converted
into tradable assets.

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Essentially, bonds are
used to borrow money.

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For example,
governments use bonds

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to borrow money to pay
for schools, roads,

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and other infrastructure.

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War can also create a
sudden need for funds.

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There are basically
four primary categories

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of bonds sold in the markets--

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corporate bonds
issued by companies,

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municipal bonds issued by
states and municipalities,

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government bonds issued
by the US Treasury,

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and agency bonds issued
by government-affiliated

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organizations such
as Fannie Mae.

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For investors, bonds are thought
of as fixed-income instruments

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because they typically pay a
fixed interest rate or coupon

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rate to bond-holders.

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Although, bonds with variable
interest rates are also common.

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Most bonds share
common characteristics.

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The issue price is the price
at which the bond issuer

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originally sells the bond.

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The face value is the amount the
bond will be worth at maturity.

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The coupon rate is the
percentage of interest

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the issuer will pay on the bond.

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The coupon date is the
date on which the issuer

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will make interest payments.

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And the maturity date is
when the bond matures,

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and the issuer pays
the bond's face value.

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The bond market also
tends to move inversely

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with interest rates.

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So bonds will trade
at a discount when

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interest rates rise
and at a higher

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price when interest rates fall.

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In short, a bond
could be thought

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of as an IOU between the
lender and borrower that

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includes the details of
the loan and its payments.

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