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Finance: What are Face amount certificates (FACs)? 1 Views
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Description:
What are Face Amount Certificates (FACs)? Face amount certificates are issued using the face amount. The person who buys it receives face value at maturity after they’ve made payments along the way.
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Transcript
- 00:00
Finance a la shmoop what are face amount certificates or FACs....F.A.C.S yeah like
- 00:09
just the facts man alright well they're a little bit like
- 00:11
an IOU or actually a lot like an IOU only face amount certificates are [IOU appears beside a FAC]
- 00:17
usually backed by a specific asset like a home or a rather a condo complex or an
- 00:23
asset of sizable value like a plane or a train or a fleet of cars an issuer says [Shmoop airlines plane in the sky]
Full Transcript
- 00:29
something like well I guarantee you I'll pay you a thousand bucks either fully 14
- 00:34
years from now if you pay me five hundred seventy two dollars and twelve
- 00:38
cents today in cash or I may choose to pay you back two hundred bucks of that
- 00:44
thousand in installment payments every few years along the way and that's the
- 00:49
stream of payments how it would look with a less annoying voice yeah well [Stream of payments across 14 year]
- 00:53
it's bit in the vein of how t-bills are sold at auction they sell at a grand
- 00:58
in months later and get auctions for like nine hundred eighty two dollars and
- 01:03
twelve cents or something like that like you buy them at a discount and then
- 01:06
they mature to par and then get your par money back got it so like in
- 01:11
that case you made seventeen dollars and eighty eight cents....
- 01:14
well the big diff T-bills are backed by the US government while face amount [Uncle Sam carrying T-bill]
- 01:18
certificates are backed by uh you know aunt condos or worse well FAC's used to
- 01:24
have all kinds of tax advantages in that you didn't owe tax on them until the
- 01:28
face amount was paid but today the tax system requires that bonds or bond
- 01:33
values get marked to market each year so that if something is bought at a huge [Discount sticker appears over FAC]
- 01:38
discount while the owner of that bond pays the predicted gains taxes on that
- 01:43
bond all along the way yeah real party poopers there those
- 01:47
tax people not nearly as advantageous as being able to wait until the very end
- 01:52
pay the tax man because eventually he cometh.... [Tax man hand reaches out to grab an ant]
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