Investment Strategy

1. What are the differences among a Treasury bill, Treasury note, and a U.S savings bond?

The difference between treasury bills, treasury notes and U S savings bonds are the length until maturity. Treasury bills are usually issued for less than a year, treasury notes are issued in terms of 2, 3, 5 and 10 years and treasury bonds are issued in terms of 30 years. Treasury bills are sold at a discount and redeemed at face value. The difference between the purchase price and the redemption price is, in effect the interest earned for the time period. Treasury notes are intermediate-term U.S government bonds, U.S savings bonds are issued by the U.S government in the amounts ranging from $50 to $10,000. Investors who buy Series EE saving bonds pay just 50 percent of the stated value and receive the full face amount in as little as 17 years the difference being earned interest. Once the bond's face value equals its redemption value, the bonds continues to earn interest but only until 30 years after the bonds were issued the bond's final maturity date. Treasury notes and treasury bonds pay a fixed amount of interest twice a year.

2. What is the difference between general obligation bond and a revenue bond?

A general obligation bond is a municipal bond backed by the taxing power of the issuing government. When interest payments come due, the issuer makes payments out of its tax receipts. A revenue bond is municipal bond backed by the money to be generated by the project being financed. As an example, revenue bonds issued by a city airport are paid from revenues raised by the airport's operation. The federal government does not tax the interest that investors receive from municipal bonds.

3. What is a p/e ratio, and what does it signify to an investor?

P/E ratio stands for price-earnings ratio, also known as the price-earnings multiple, which is computed by dividing a stock's market price by its prior year's earnings per share. Some investors also calculate a forward p/e ratio using expected year earnings in the ratio's denominator. Keep in mind that if a stock's p/e ratio is well below the industry norm, either the company is in trouble or it's an undiscovered gem with a relatively low stock price.

Reference

Bovee, C., Mescon, M., Thill, J. (2007). Excellence in Business (3rd ed.). Upper Saddle

River NJ, Pearson/Prentice Hall