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JOB MARKET ADVICE FOR MY STUDENTS University of New Orleans Tulane University Securities Business & Brokerage Firms Economic Analysis, Industry Analysis, Company Analysis How to set personal and professional goals.
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There is no safer debt obligation than those issued by the US Government. US Treasury issues more debt than any other entity. Obligations are backed by the full faith and credit of the US Government. They are free of default risk, are non-callable and are tax exempt on state and local level. Treasuries can be purchased through brokerage firms (w/ commission) or through the Federal Reserve Banks free of charge. The three primary marketable securities issued by the Treasury are: Bonds, Notes and Bills.
TREASURY BILLS: They are sold at a discount from face value and mature at face value. Federal Reserve Bank holds weekly auctions. Firms and individuals use T-Bills to park cash and defer income taxes into the next calendar year. Taxes are paid when bills mature.
TREASURY NOTES: They pay semi-annual coupons like corporate bonds. The following table is an excerpt from the Wall Street Journal on March 9, 2005. Notice the explanatory notes that precede the data, this is printed in the Journal everyday. The quotations for Bid and Asked prices have to be converted to dollars consistent with the notes listed below. 101:01 = 101 1/32 ----> 101.03125 ----> = $1010.31. Quotations are "a percent of the par value." With the par values of bonds and notes listed in the above table. On Treasury Bills, they are sold at a discount from the face value (face value is in the above table). They pay no coupons. For a Bill with an Ask discount percentage of 2.94 (this is the last one in the table listed below), we would figure the price like this: Start with 100% of the par value, subtract the Ask discount (2.94%) then multiply the result by pat ($10,000). Thus: 100% - 2.94% = 97.06% x $10,000 = $9,706. Done. The point here is to calculate the price of a Bill. To purchase the last bill on the table (below), it would cost $9706, it would mature on September 8, 2005 for par ($10,000), the investor would earn $294 in interest.
Municipal Bonds: Sold by municipalities (States, Cities, Local
Communities) for their financing efforts. (Sold through brokers
and dealers. Governments are not in the securities business, they
do not sell the bonds themselves.) Bond funds are used to pave
streets, build bridges etc.
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