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Part: 5 Here's Our Advice > Glossary - Pg. 284

Glossary 284 blue-chip stock There is no set definition of a blue-chip stock, but most people agree that it has at least three characteristics: It is issued by a well-known, respected company; it has a good record of earn- ings and dividend payments; and it is widely held by investors. Blue chips can decrease in value, but because they are unlikely to go bankrupt, they are generally considered a more conservative investment than stock in small companies. Blue-chip stocks are usually high-priced and low- yielding. The term blue chip comes from the game of poker, in which the blue chip holds the highest value. bond An interest-bearing security that obligates the issuer to pay a specified amount of interest for a specified time, usually several years, and then repay the bondholder the face amount. Bonds issued by corporations are backed by corporate assets; in case of default, the bondholders have a legal claim on those assets. Bonds issued by government agencies may or may not be col- lateralized. Interest from corporate bonds is taxable; interest from municipal bonds, which are issued by state and local governments, is free of federal income taxes and usually income taxes of the issuing jurisdiction. Interest from Treasury bonds, issued by the federal government, is free of state and local income taxes but is subject to federal taxes. bond fund A mutual fund that invests primarily in bonds. Commonly referred to as a fixed-income invest- ment. bond rating The can-they-pay grading of a debt security. Bond ratings measure a bond issuer's ability to meet interest and principal payments in a timely manner. The two major rating services, Moody's and Standard & Poor's, each use AAA as the highest rating and grade down through B's and C's from there. Debts rated AAA, AA, and BBB are considered "investment grade." Higher-rated