Snappy Buys a Bond
Snappy has learned that profiting from quickly buying and selling stocks is not a good business plan. In fact, he lost a lot of money in his last ‘day trading’ adventure!
Snappy Buys a Bond
A talkative blue jay told him that Bear, who runs the forest, was running out of revenue which he normally got from taxes paid by the forest business people and homeowners. He wanted to borrow some money from the forest citizens and promised to pay it back with interest.
Snappy Buys a Bond
Snappy wanted a safer, more regular income and was willing to lend some money to Bear. Or perhaps he could find another company that offers a similarly safe investment. Which should he choose?
Snappy Buys a Bond
Lending to someone else is called 'buying a bond' from them because they are required to pay it back. For each nut Snappy lent, the business or Bear must pay a few seeds, called ‘interest’, and eventually return a nut to Snappy.
Snappy Buys a Bond
Bonds from a business, Snappy learned, are called ‘corporate bonds.’ Bonds from Bear are called ‘Treasury Bonds’.
Snappy Buys a Bond
Snappy could get a consistent payout of seeds from this type of lending. Bear will pay either a few seeds per month, or Snappy could wait until the end of the year to collect, and get a larger payout of seeds.
Snappy Buys a Bond
Other businesses in the forest paid seeds for bonds as well. For example, Mrs. Mole owned an underground storage business that never made much money, but is a safe investment and has never had problems. Mrs. Mole wanted to expand her storage area, and offered Corporate Bonds - for one acorn, she will pay two sesame seeds and return the acorn at the end of the year.
Snappy Buys a Bond
Bear encouraged the business owners in the forest to offer bonds and citizens to buy them, so he does not collect taxes on this transaction.
Snappy Buys a Bond
Bear himself needed to start a major construction of a bridge over a creek, and offered Treasury Bonds to pay the Beaver engineers to construct it. He will give three sesame seeds for an acorn if he is allowed to keep the acorn an entire year.
Snappy Buys a Bond
Snappy decided that he will buy some Treasury Bonds from Bear as it was a very safe investment. Bear was powerful enough to get all the nuts and seeds he needed, so Snappy trusted him to honor the agreement. Big Bear will not ‘default’ on the year-end payment, so Snappy knows he is lending wisely.