ShmoopTube

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Finance a la shmoop what are face amount certificates or FACs....F.A.C.S yeah like

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just the facts man alright well they're a little bit like

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an IOU or actually a lot like an IOU only face amount certificates are [IOU appears beside a FAC]

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usually backed by a specific asset like a home or a rather a condo complex or an

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asset of sizable value like a plane or a train or a fleet of cars an issuer says [Shmoop airlines plane in the sky]

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something like well I guarantee you I'll pay you a thousand bucks either fully 14

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years from now if you pay me five hundred seventy two dollars and twelve

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cents today in cash or I may choose to pay you back two hundred bucks of that

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thousand in installment payments every few years along the way and that's the

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stream of payments how it would look with a less annoying voice yeah well [Stream of payments across 14 year]

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it's bit in the vein of how t-bills are sold at auction they sell at a grand

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in months later and get auctions for like nine hundred eighty two dollars and

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twelve cents or something like that like you buy them at a discount and then

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they mature to par and then get your par money back got it so like in

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that case you made seventeen dollars and eighty eight cents....

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well the big diff T-bills are backed by the US government while face amount [Uncle Sam carrying T-bill]

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certificates are backed by uh you know aunt condos or worse well FAC's used to

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have all kinds of tax advantages in that you didn't owe tax on them until the

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face amount was paid but today the tax system requires that bonds or bond

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values get marked to market each year so that if something is bought at a huge [Discount sticker appears over FAC]

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discount while the owner of that bond pays the predicted gains taxes on that

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bond all along the way yeah real party poopers there those

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tax people not nearly as advantageous as being able to wait until the very end

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pay the tax man because eventually he cometh.... [Tax man hand reaches out to grab an ant]

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