CHAPTER NINETEENSAVINGS DEPOSITSSlide 3THE MONEY MARKETSlide 5U.S. GOVERNMENT SECURITIESSlide 7Slide 8Slide 9Slide 10FEDERAL AGENCY SECURITIESSlide 12STATE AND LOCAL GOVERNMENT SECURITIESSlide 14CORPORATE BONDSSlide 16Slide 17Slide 18Slide 19Slide 20Slide 21Slide 22FOREIGN BONDSPREFERRED STOCK1CHAPTER NINETEENTYPES OF FIXED-INCOME ANALYSIS2SAVINGS DEPOSITS•COMMERCIAL BANKS–their financial products include various fixed-income securities, and are•usually insured by a federal agency, such as the Federal Deposit Insurance Corporation, known as the FDIC3SAVINGS DEPOSITS•OTHER SAVINGS INSTITUTIONS:–Savings and Loan Companies–Mutual Savings Banks–Credit Unions4THE MONEY MARKET•DEFINITION: a market for buyers and sellers of short-term (less than one year in maturity) financial products5THE MONEY MARKET•MONEY MARKET INSTRUMENTS–commercial paper–certificates of deposit–Bankers’ acceptances–eurodollars–repurchase agreements (repos)6U.S. GOVERNMENT SECURITIES•TYPES OF GOVERNMENT SECURITIES–U.S. Treasury Bills•issued on a discount basis•maturities up to 52 weeks•sold by auction (bid process)7U.S. GOVERNMENT SECURITIES•TYPES OF GOVERNMENT SECURITIES–U.S. Treasury Notes•longer term than T-bills•from one to ten years•semiannual coupon payments•current owners are registered•issued in denominations of $1000 or more•active secondary market8U.S. GOVERNMENT SECURITIES•TYPES OF GOVERNMENT SECURITIES–U.S. Treasury Bonds•maturities greater than ten years•denominations in $1,000 or more •some have call provisions9U.S. GOVERNMENT SECURITIES•TYPES OF GOVERNMENT SECURITIES–U.S. Savings Bonds•nonmarketble and offered only to individuals•Series EE are pure discount bonds•Series HH mature in 20 years with semiannual coupon payments10U.S. GOVERNMENT SECURITIES•TYPES OF GOVERNMENT SECURITIES–Zero Coupon Treasury Security Receipts or Coupon stripping•Treasury bonds are purchased and placed in trust with a custodian•sets of receipts issued for each coupon date•another set of receipts issued for certain maturity dats11FEDERAL AGENCY SECURITIES•BONDS OF FEDERAL AGENCIES–Department of Defense–Export-Import Bank–Federal Housing Authority–Postal Service–Tennessee Valley Authority12FEDERAL AGENCY SECURITIES•BONDS OF FEDERALLY SPONSORED AGENCIES–Federal Home Loan Bank–Federal National Mortgage Association–Student Loan Mortgage Corporation –Farm Credit Bank–Resolution Funding Corporation13STATE AND LOCAL GOVERNMENT SECURITIES•ISSUING AGENCIES–States–Special Districts–Municipalities, Counties and Townships14STATE AND LOCAL GOVERNMENT SECURITIES•TYPES OF MUNICIPAL BONDS–General Obligation–Revenue–Industrial Development15CORPORATE BONDS•TAX TREATMENT–How is the income from a bond treated in the tax return of the corporation?•discount basis–discount taxed as ordinary income by federal government•coupon basis–coupon taxed annually–interest payments by corporation considered expenses to reduce taxable income16CORPORATE BONDS•THE INDENTURE–DEFININTION: a legal document formally describing the terms of the legal relationship between a bond issuer and bondholders.17CORPORATE BONDS•THE INDENTURE–The Trustee•acts to protect the interests of bondholders•facilitates communications between them and the issuer•the indenture promises the trustee that it will comply with a number of stated provisions18CORPORATE BONDS•THE INDENTURE–includes other terms such as the sale of assets, issuance of other bonds, dividends payment changes, and other issues that may change the profitability and solvency of the issuer19CORPORATE BONDS•TYPES OF BONDS–mortgage–collateral trust–equipment obligations–debentures–income–guaranteed20CORPORATE BONDS•CALL PROVISIONS–the option to pay off the bond at par at any time prior to maturity21CORPORATE BONDS•THE INDENTURE–Two Kinds of Call Provisions:•no calls in first five years or•call premium is specified in the provision at time of issue22CORPORATE BONDS•SINKING FUNDS–requires issuer to make annual payments to a fund–the fund pays part of the principal each year–trustee may also repurchase bonds in the open market23FOREIGN BONDS•WHAT CONSTITUTES A FOREIGN BOND?–DEFINITION: foreign bonds are bond offered in another currency outside the issuers country of origin–Example:•a yankee bond is a foreign bond denominated in U.S. dollars issued in the U.S. by a Canadian firm24PREFERRED STOCK•DEFINITION: a hybrid form of security that has characteristics of both common stocks and bonds–similar to a perpetual bond–receive preferential treatment before common stock in order of dividend payment–unpaid dividends usually accumulate–some are convertible to common