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9. Healthdale, the town where HnnH is headquartered, wants to attract more businesses to its health care innovation cluster. Healthdale city officials want to improve the Cityrail public transportation system to entice businesses to locate in Healthdale. They have created a special district to issue bonds to fund the improvements. James Bonds has purchased $10,000 of the Cityrail district bonds. He thinks he has an ownership interest in Cityrail and can ride for free the rest of his life. Tell him why this is wrong. What is he entitled to? _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 10. Can James Bonds go to this so-called “district” and look around? Can he ride for free as a bondholder? _ ______________________________________________________________________________ 11. Healthdale city officials hope that the Cityrail system will eventually produce enough revenue to pay off the bonds at their maturity date. What if the project fails and there is no revenue? What special power does the city have to ensure the bondholders get paid? _ ______________________________________________________________________________ 12. Notes and bonds are kind of like... a. stock evidencing equity ownership b. an I.O.U evidencing debt. 13. What does “default” mean? _ ______________________________________________________________________________ 14. The Healthdale municipal bonds are rated AAA. What does that mean, and what is the purpose of a bond rating? _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 15. Nancy, of Fancy Schmancy Marketing said she just “loves the history of Wall Street ever since that wall was built by the French settlers in 1750! ” How is this wrong? _ ______________________________________________________________________________ _ ______________________________________________________________________________ Bond’s bonds represent debt, not ownership. Has no equity ownership interest in the project. He has a right to be repaid what he , in effect, loaned to the special district. He will receive interest (coupon) payments until the maturity date . A special district is not a place; it is a government unit. He gets no free rides. The power to tax its citizens. Any failure to pay on an obligation as and when required. It means that the Healthdale bonds have a low risk of default. The bond rating system is used to measure risk . The wall for which Wall Street was named was actually built by Dutch settlers much earlier – around 1653. PRODUCT PREVIEW
269 THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY
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