This document provides information about annuities and bonds. It defines annuities as investments that convert a lump sum into a stream of monthly income for a fixed period or lifetime. It describes different types of annuities including single premium deferred annuities, single premium immediate annuities, variable annuities, and index annuities. It also defines bonds as traded loans that provide predictable income and discusses types of bonds as well as risks associated with bond investments like interest rate risk and default risk.

2. Disclaimer
• Andreas Rauterkus is not a registered
investment advisor or broker/dealer. Readers
are advised that the material contained herein
should be used solely for informational
purposes. Andreas Rauterkus does not purport
to tell or suggest which investment securities
attendants should buy or sell for themselves.
You should always conduct your own research
and due diligence and obtain professional
advice before making any investment decision.

3. Objectives
• What are annuities and bonds
• How to pick annuities and bonds
• What are the risks?

4. Annuities
• Lump sum of cash invested to produce a monthly
stream of income for a fixed period or for life
• The income can start now (immediate annuity) or in
the future (deferred annuity)
• The minimum investment in an annuity is usually
around $5,000

5. Types of Annuities
• SINGLE PREMIUM DEFERRED ANNUITY (SPDA)
– guarantees you a specific interest rate for a specific period of time
– taxes are postponed until money is withdrawn
• SINGLE PREMIUM IMMEDIATE ANNUITY (SPIA)
– guarantees you an immediate fixed income for the rest of your life,
and, in some cases, continuing for a certain period even after
death
• VARIABLE ANNUITY
– money is used most often to purchase different mutual funds
– in the end you will never get back less than what you originally
deposited or whatever the current value of the account is

6. Types of Annuities
• INDEX ANNUITY
– The index annuity tracks an index such as the Standard
and Poor's 500 index, and your return on your money will
usually be a percentage of what that particular index did
– you do not participate in any downside risk
• TAX SHELTERED ANNUITY (TSA)
– money is invested on a monthly basis
• SURRENDER PERIOD
– amount of time during which you have to keep the majority
of your money in the contract
– surrender periods last from five to 10 years
– If you take out money early, a surrender charge is due

7. Bonds
• A bond is basically a traded loan
• Bonds are debt securities that provide a predictable
stream of income
• Some interest income is tax exempt
• Bonds can have maturities of up to 30 years
• Face values typically range between $1,000 and
$5,000
• Bonds are traded “over-the-counter”

8. Types of Bonds
• Secured bonds
• Debentures
– Unsecured
• Zero-coupon bonds
• Corporate bonds
• Municipal bonds
• U.S. Treasury bonds
• Agency securities
• U.S. savings bonds
• Callable bonds
• Convertible bonds

9. Earnings Potential
• Payments are normally fixed over the life of the
bond
• Interest payments are called coupon payments
• Interest rate = coupon rate
• Coupon rate is not the yield that you can earn on
your bond investment

10. What affects bond prices?
• If interest rates rise, bond prices fall and vice versa
• Maturity
• Default risk
• Likelihood of being called

11. Example
• Buy five year 6% coupon bond at $1000 par value
• Now interest rates rise to 7%
• New bonds would be issued with 7% coupon rate
• Bond price should fall to $958.42
• If interest rate drop to 5%, bond price should be
$1,043.76

12. Yields
• Coupon yield
– coupon rate
– In example: 6%
• Current yield
– Interest payment as % of current price
– In example: 60/958.42 = 6.26%
• Yield to maturity
– Yield if bond is held to maturity

13. Risks of Bond Investments
• Interest rate risk
– Impact of changes in market interest rates on the value of a
bond
• Default risk
• Bond ratings
• Anything rated below BBB or Baa is considered
“junk”
S&P Moody’s What it Means
AAA Aaa The highest possible rating, indicating the agencies‘ highest degree of
confidencein the issuer‘s ability to pay interest and repay the principal.
AA Aa A very high rating, only marginally weaker than the highest.
A A High capacity to repay debt but slightly more vulnerability to adverse economic
developments.
BBB Baa The lowest investment-grade rating, indicating ―adequate capacity to pay
principal and interest but more vulnerability to adverse economic developments.

14. How to minimize interest rate risk
• Don’t buy bonds when interest rates are low or
rising
• Avoid long term issues
• Acquire multiple maturities
• Bond mutual funds best choice for individual
investor

15. What Can Bond Do For You?
• Means to diversify your portfolio
• Relative safety of bonds
• Income component
• Large variety of bonds offers array of risk choices