Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 20

secondary markets) in an attempt to profit from the price movements of such securities. Profits (capital gains) realized by buying and selling such securities in the open market, however, are subject to state and local taxes as well as federal tax.

Finally, an alternative way of buying (or investing in) Treasury notes and bonds is Treasury zero coupons. Also known as Treasury zeros or just plain zeros, Treasury zero coupons are the individual interest payments and principal payment of certain Treasury notes and bonds registered as separate securities. The break-up of the Treasury notes and bonds into zeros is achieved through the STRIPS program, which stands for Separate Trading of Registered Interest and Principal of Securities. As an example, a 10-year Treasury note for $1,000 consists of 20 interest payments - one every six months for 10 years - and a principal payment of $1,000 when the note matures. If this security were "stripped," each of the 20 interest payments and the principal payment would become a separate component or security for a total of 21 components. Each of the components could then be separately sold or traded. They are called "zeros" because purchasers of such securities do not receive explicit periodic interest payments. Instead the zeros are sold at a discount to their face values and can be redeemed at their face values at maturity. Zeros provide no more or less benefits than their underlying securities, although they are more volatile. They are just another way of investing in securities, giving investors more options to pick from.

The Thing Called Yield

Simply put, yield is the amount of profit you will receive for an investment, usually expressed in percentage terms. Suppose you find a savings account paying 20% interest on your deposit every year. (If you


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  • Book Chapters
    Table of Contents Copyright and Disclaimer Foreword Money
    Bonds Futures Stocks Options
    Mutual Funds Retirement Final Words Appendix A

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