HomeMy WebLinkAboutR-2386 - Adopting a policy for the Investment of City FundsCITY OF MARYSVILLE
Marysville, Washington
RESOLUTION NO.
A RESOLUTION OF THE CITY OF MARYSVlLLE ADOPTING A POUCY FOR
THE INVESTMENT OF CITY FUNDS
WHEREAS , the City Council desires to adopt an investment policy that sets forth
guidelines for the investment of all funds of the City, and
WHEREAS, this investment policy should reflect the Council's intent that all funds are
invested in a manner that ensures the security of the principal while meeting the daily cash flow
demands of the City and the highest investment return, in conformance with federal, state, and
other legal requirements, and
WHEREAS, the Marysville City Treasurer (Director of Finance) ha s recommended an
investment policy that is consistent with the Council's direction, and
WHEREAS, this investment policy has been written in accordance with the Government
Finance Officers Association (GFOA) best practices.
NOW, THEREFORE, IT IS HEREBY RESOLVED BY THE CITY COUNClL OF THE
CITY OF MARYSVILLE, WASHING TON AS FOLLOWS :
Section 1. The policy for the investment of City funds set fo11h in the document
entitled "City of Marysville Investment Policy," which is attached hereto and incorporated herein
by this reference as if set forth in full, is hereby adopted as official policy for the investment of
the City funds.
Section 2. That the adoption of the document entitled City of Marysville Investment
Policy, replaces all previous City of Marysville Investment Policie s.
PASSED by the City Council and APPROVED by the Mayor this li day of [\::1er'!lb~'To 1s .
ATTEST:
~City Clerk
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APPRdVED AS TO FORM:
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Investment Policy
CITY OF MARYSVILLE
I of I 12/10/2015
City of Marysville ‐ Investment Policy 1
CITY OF MARYSVILLE INVESTMENT POLICY
(ADOPTED DECEMBER 14, 2015)
Policy Statement
This policy establishes standards and guidelines for the direction, management
and oversight for all of the City of Marysville’s investable cash and funds. Funds
must be invested prudently to assure preservation of principal, provide needed
liquidity for daily cash requirements, and provide a market rate of return. All
investments must conform to federal, state, and local statutes governing the
investment of public funds.
.
City of Marysville ‐ Investment Policy 2
TABLE OF CONTENTS
1.0 INTRODUCTION………….. ...................................................................................................... 3
2.0 GOVERNING AUTHORITY………… ........................................................................................... 3
3.0 SCOPE ................................................................................................................................ 3
4.0 OBJECTIVES ........................................................................................................................ 3
4.1 Safety
4.2 Liquidity
4.3 Return
5.0 STANDARDS OF CARE ........................................................................................................... 4
5.1 Delegation of Authority
5.2 Prudence
5.3 Ethics
6.0 SAFEKEEPING, CUSTODY AND CONTROLS ............................................................................... 4
6.1 Delivery vs. Payment
6.2 Third Party Safekeeping
6.3 Internal Controls
7.0 AUTHORIZED FINANCIAL DEALERS .......................................................................................... 5
7.1 Broker/Dealers
7.2 Investment Advisors
7.3 Bank Institutions
7.4 Competitive Transactions
8.0 AUTHORIZED AND SUITABLE INVESTMENTS .............................................................................6
8.1 Authorized Investments
8.2 Suitable Investments
8.3 Bank Collateralization
8:4 Repurchase Agreement Collateralization
9.0 INVESTMENT PARAMETERS .................................................................................................... 8
9.1 Diversification Constraints
9.2 Investment Maturity
9.3 Investment Strategy
9.4 Prohibited Investments
10.0 REPORTING REQUIREMENTS ................................................................................................ 10
10.1 Reporting
10.2 Performance Standards
10.3 Compliance Report
11.0 INVESTMENT POLICY ADOPTION .......................................................................................... 10
12.0 GLOSSARY OF TERMS ......................................................................................................... 11
City of Marysville ‐ Investment Policy 3
1.0 INTRODUCTION
This Investment Policy defines the parameters within which funds are to be invested by the City of Marysville
(“City”). This policy also formalizes the framework, of the City’s Policy and Procedures to provide the authority
and constraints for the City to maintain an effective and judicious management of funds within the scope of this
policy.
These policies are intended to be broad enough to allow the Finance Director or authorized designee to
function properly within the parameters of responsibility and authority, yet specific enough to adequately
safeguard the investment assets.
2.0 GOVERNING AUTHORITY
The City of Marysville’s investment authority is derived from Chapter 35A.40.050 RCW. The investment
program shall be operated in conformance with Washington Revised Statutes and applicable Federal Law. All
funds within the scope of this policy are subject to regulations established by the State of Washington.
3.0 SCOPE
This policy applies to activities of the City of Marysville with regard to investing the financial assets of the City.
The amount of funds expected to fall within the scope of this policy is $35MM to $60MM, including all funds
under the control and management of the City of Marysville.
1. General Funds
2. Special Revenue Funds
3. Debt Service Funds
4. Capital Projects Funds
5. Special Assessment Funds
6. Enterprise Funds
7. Internal Service Funds
8. Trust and Agency Funds
This investment policy applies to all investment transactions involving the financial assets and related activity of all
the foregoing funds.
4.0 OBJECTIVES
All funds will be invested in a manner that is in conformance with federal, state and other legal
requirements. In addition, the objectives, in order of priority, of the investment activities will be as
follows:
4.1 Safety: Safety of principal is the primary objective of the City. Investments shall be
undertaken in a manner that seeks to ensure preservation of capital in the overall portfolio. To
obtain this objective, funds will be diversified, utilizing highly rated securities, by investing
among a variety of securities and financial institutions. The investment portfolio will be
invested in a manner that meets RCW statutes and all legal requirements of the City.
4.2 Liquidity: The investment portfolio will provide liquidity sufficient to enable the City to
meet all cash requirements that might reasonably be anticipated. Therefore, the investments
shall be managed to maintain a balance to meet daily obligations.
City of Marysville ‐ Investment Policy 4
4.3 Return on Investment: The investment portfolio will be structured with the objective of
attaining a market rate of return throughout economic cycles, commensurate with the
investment risk parameters and the cash flow characteristics of the portfolio.
5.0 STANDARDS OF CARE
5.1 Delegation of Authority:
Governing Body: The ultimate responsibility and authority for the investment of City funds
resides with the City Council who have the authority to direct the management of the City
investment program.
Authority: The overall management responsibility for the investment program is hereby
delegated to the Finance Director, or designee, who shall establish written procedures for the
operation of the investment program, consistent with this investment policy. The Finance
Director shall be responsible for all transactions undertaken and shall establish a system of
controls to regulate the activities of subordinate officials.
Investment Advisor: The City may engage the services of an external investment advisor to
assist with the management of the City’s investment portfolio in a manner that is consistent
with the City’s objectives and this policy. Such advisors shall provide recommendation and
advice regarding the City investment program including but not limited to advice related to the
purchase and sale of investments in accordance with this Investment Policy.
5.2 Prudence:
The standard of prudence to be used by the Finance Director or any designees in the context of
managing the overall portfolio is the prudent person rule which states: Investments will be
made with judgment and care, under circumstances then prevailing, which persons of prudence,
discretion and intelligence exercise in the management of their own affairs not in regard to
speculation but in regard to the permanent disposition of the funds considering the probable
income as well as the probable safety of the capital.
5.3 Ethics:
Officers and employees involved in the investment process shall refrain from personal business
activity that could conflict with proper execution of the investment program, or which could
impair their ability to make impartial investment decisions. Employees and investment officials
shall disclose to the Finance Director in writing any material financial interests in financial
institutions that conduct business within this jurisdiction, and they shall further disclose any
large personal financial/investment positions that could be related to the performance of the
City’s portfolio. Employees and officers shall subordinate their personal investment
transactions to those of the City of Marysville, particularly with regard to the time of purchases
and sales.
6.0 SAFEKEEPING, CUSTODY AND CONTROLS
6.1 Delivery vs. Payment:
City of Marysville ‐ Investment Policy 5
All trades of marketable securities will be executed (cleared and settled) on a delivery vs.
payment (DVP) basis to ensure that securities are deposited in the City’s safekeeping institution
prior to the release of funds.
6.2 Third Party Safekeeping:
Prudent treasury management requires that all purchased securities be bought on a delivery
versus payment (DVP) basis and be held in safekeeping by the City, an independent third‐party
financial institution, or the City’s designated depository.
The City’s Finance Director shall designate all safekeeping arrangements and an agreement of
the terms executed in writing. The third‐party custodian shall be required to provide a
statement to the City listing at a minimum each specific security, book yield, description,
maturity date, market value, par value, purchase date, and CUSIP number.
All collateral securities pledged to the City for certificates of deposit or demand shall be held in
a segregated account at the issuing financial institution that is reporting to the State’s Public
Deposit Protection Commission (PDPC).
6.3 Internal Controls:
The Finance Director is responsible for establishing and maintaining an internal control
structure designed to ensure that the assets of the City are protected from loss, theft or misuse.
Specifics for the internal controls shall be documented in an investment procedures manual.
The internal control structure shall be designed to provide reasonable assurance that these
objectives are met. The concept of reasonable assurance recognizes that the cost of a control
should not exceed the benefits likely to be derived and the valuation of costs and benefits
requires estimates and judgments by management. The internal controls shall address the
following points at a minimum:
Control of collusion
Separation of transaction authority from accounting and recordkeeping
Custodial safekeeping
Avoidance of physical delivery securities of marketable securities
Clear delegation of authority to subordinate staff members
Written confirmation of transactions for investments and wire transfers
Dual authorizations of wire transfers
Staff training and
Review, maintenance and monitoring of security procedures both manual and
automated.
7.0 AUTHORIZED FINANCIAL DEALERS
7.1 Broker/Dealers:
The Finance Director shall maintain and review annually a list of all authorized financial
institutions and broker/dealers that are approved to transact with the City for investment
purposes.
City of Marysville ‐ Investment Policy 6
The Finance Director or designee may utilize the investment advisor’s approved broker/dealer
list in lieu of the City’s own approved list. The advisor must submit the approved list to the City
annually and provide updates throughout the year as they occur. The advisor must maintain
documentation of appropriate license and professional credentials of broker/dealers on the list.
The annual investment advisor broker/dealer review procedures include:
a. FINRA Certification check:
i. Firm Profile
ii. Firm History
iii. Firm Operations
iv. Disclosures of arbitration awards, disciplinary and regulatory events
v. State Registration Verification
b. Financial review of acceptable FINRA capital or letter of credit for clearing settlements.
The advisor may be authorized through the contracted agreement to open accounts on behalf
of the City with the broker/dealers on the approved broker dealer list. The City will receive
documentation directly from the brokers for account verification and regulatory requirements.
7.2 Investment Advisors:
Advisors must be registered under the Investment Advisors Act of 1940 and must act in a non‐
discretionary capacity, requiring approval from the City prior to all transactions.
7.3 Bank Institutions:
The City will only place funds, exceeding the current FDIC insurance limits, with banks who are
currently participating in the Washington State PDPC program. Compliance/listing with the
PDPC will be verified by the Advisor or designated investment officer utilizing the Washington
State Treasurer’s website (http://www.tre.wa.gov/government/pdpc.shtml).
7.4 Competitive Transactions:
Transactions must be executed on a competitive basis and documented, excluding securities
and interfund loans issued by the City of Marysville. Competitive prices should be provided
from at least three separate brokers, financial institutions or through a nationally electronic
trading platform. When purchasing original issue instrumentality securities, no competitive
offerings will be required as all dealers in the selling group offer those securities as the same
original issue price. If an Advisor handles trade executions then they must provide the
competitive documentation as requested.
8.0 AUTHORIZED AND SUITABLE INVESTMENTS
8.1 Authorized Investments:
All investments of the City are limited by RCW, principally RCW 35A.40.050 and 39.59.020.
Among the authorized investments are U.S. Treasury and agency securities (i.e., obligations of
any government sponsored enterprise eligible for collateral purposes at the Federal Reserve),
repurchase and for collateral otherwise authorized for investment, municipal debt of this state
with one of the three highest ratings of a national rating agency at the time of investment, debt
of the City of Marysville, certificates of deposit with qualified public depositories within
City of Marysville ‐ Investment Policy 7
statutory limits as promulgated by the Public Deposit Protection Commission at the time of
investment, foreign and domestic Bankers Acceptances, Commercial Paper and the
Washington State Local Government Investment Pool.
The State of Washington Local Government Investment Pool is the only government‐
sponsored Pool approved for investment of funds.
8.2 Suitable Investments:
The City is empowered to invest in the following types of securities:
TYPE DEFINITION
U. S Treasury Obligation Direct obligations of the United States Treasury
GSE‐ Agency Obligations Government Sponsored Enterprises (GSEs) – Federal
Instrumentality Securities include, but are not limited to
Federal National Mortgage Association (FNMA), the Federal
Home Loan Mortgage Corporation (FHLMC), Federal Home
Loan Banks (FHLB), and the Federal Farm Credit Bureau
(FFCB).
Commercial Paper Unsecured debt obligations of corporate issuers that are rated
at least A1+ by Moody’s and P1 by Standard and Poor’s.
Commercial paper holdings may not have maturities
exceeding 180 days. Any commercial paper purchased with a
maturity longer than 100 days must also have an underlying
long‐term credit rating at the time of purchase must have a
minimum rating of AA‐ by S&P and Aa3 by Moody’s RCW
39.59.020.
Bankers Acceptance Bankers Acceptances generally are created based on a letter
of credit issued in a foreign trade transaction. They are used
to finance the shipment of some specific goods within the
United States. They are Issued by qualified financial
institutions eligible for discount by the Federal Reserve
System and by a qualified institution whose long‐term letter
of credit rating is rated in the highest category AAA.
Local Government Investment Pool Investment Pool managed by the Washington State Treasury
office.
Time deposits and Savings accounts
issued by banks
Deposits in PDPC approved banks.
City of Marysville ‐ Investment Policy 8
Certificates of Deposit
Non‐negotiable Certificates of Deposit of financial institutions
which are qualified public depositories as defined by RCW
39.58.010(2) and in accordance with the restrictions therein.
Municipal Debt Obligations Bonds of the State of Washington, any local government in
the State of Washington, General Obligation bonds outside
the State of Washington; at the time of investment the bonds
must have AA‐ by S&P or Aa3 by Moody’s. If split rating the
lowest rating must meet the rating criteria. Debt of the City
of Marysville is not required to be rated.
8.3 Bank Collateralization:
The PDPC makes and enforces regulations and administers a program to ensure public funds
deposited in banks and thrifts are protected if a financial institution becomes insolvent. The
PDPC approves which banks and thrifts can hold state and local government deposits and
monitors collateral pledged to secure uninsured public deposits. Under the act, all public
treasurers and other custodians of public funds are relieved of the responsibility of executing
tri‐party agreements, reviewing pledged securities, and authorizing additions, withdrawals,
and exchanges of collateral.
8.4 Repurchase Agreement Collateralization:
Collateral will be required on Repurchase Agreements, and will be limited to the suitable
investments listed in this policy under 8. Collateral shall be delivered to the City’s safekeeping
agent, or through a tri‐party arrangement in which the proper documents delineating the
responsibilities of the parties have been executed. A clearly marked evidence of ownership
(safekeeping receipt) must be supplied to the City and retained.
Any required overcollateralization (the amount by which the market value of the securities
collateralizing the transaction exceeds the transaction value) will be determined at the time of
the transaction, as specified in the Master Repurchase Agreement. Any such
overcollateralization shall not be less than 102% of the current market value of the collateral.
Such collateral shall be revalued on a periodic basis, but not less than weekly by the advisor, in
order to maintain market protection. The final maturity of the collateral for repurchase
agreements may not exceed three years.
City of Marysville ‐ Investment Policy 9
9.0 INVESTMENT PARAMETERS
9.1 Diversification:
The City will diversify the investment of all funds by adhering to the constraints by issuer type
in accordance with the following table:
Table of Constraints on the Portfolio
ISSUER TYPE
% of Total
Portfolio
Maximum
Per Issuer
Constraints
Maximum
U. S Treasury Obligation 100% 100%
GSE‐Agency Obligations 100% 35%
Municipal Debt Obligations 30% 5%
City of Marysville Debt 10% n/a
Bankers Acceptance 20% 5%
Local Government Investment Pool 100% n/a
Time Deposits 20% 10%
Certificates of Deposits 25% 10%
Commercial Paper 15% 5%
9.2 Investment Maturity:
9.2.1 Liquidity Funds – Tier 1 ‐ Short Term
Liquidity funds will be defined as those funds that are in the State LGIP City, bank
deposits, bank certificates of deposits or money market instruments and will be
available for immediate use.
9.2.2 Investment Core Funds – Tier 2 – Longer Term
Investment funds will be the defined as the funds in excess of liquidity requirements
and invested in authorized investments. The investments in this portion of the
portfolio are allowed to have maturities out to 5 Years and will be only invested in
higher quality and liquid (marketable) securities.
Reserve or Capital Improvement Project monies may be invested in securities
exceeding five (5) years if the maturities of such investments are made to coincide as
nearly as practicable with the expected use of the funds.
9.2.3 Total Portfolio Maturity Constraints:
Maturity Constraints Minimum % of
Total Portfolio
Under 30 days 10%
Under 1 year 25%
City of Marysville ‐ Investment Policy 10
Under 5 years 100%
WAM ( Weighted Average Maturity) 2 years
9.3 Strategic Allocations:
9.3.1 Funds and their Allocation
a. Liquidity fund for the operating account will be allocated to LGIP, CD’s, Bank
Deposits, Bankers Acceptances, and Commercial Paper
b. The structure of the investment core fund will be targeted to a selected market
benchmark based on the risk and return objectives of the portfolio.
c. Longer term funds and trust funds will have an identified market benchmark to
manage risk and return.
9.3.2 Monitoring and Portfolio Adjustment: As a general practice securities will be
purchased with the intent to hold to maturity. However, it is acceptable for
securities to be sold under the following circumstances:
a. A security with a declining credit may be sold early to protect the principal value
of the portfolio.
b. The portfolio duration or maturity buckets should be adjusted to better reflect
the structure of the underlying benchmark portfolio.
c. A security exchange that would improve the quality, yield and target maturity of
the portfolio based on market conditions.
d. A sell of a security to provide for unforeseen liquidity needs.
9.4 Prohibited Investments:
9.4.1 The City shall not lend securities nor directly participate in a securities lending or
reverse repurchase program.
9.4.2 The City shall not invest in mortgage‐backed securities.
10.0 REPORTING REQUIREMENTS
10.1 Reporting:
The Finance Director shall be responsible for investment reporting. At a minimum, monthly
reporting shall be made to the Finance Committee including but not limited to securities holdings,
cash balances, and market values in the investment portfolio will be provided on the month‐end
reports.
Specific Requirements:
Book Yield
Holdings Report including mark to market and security description
City of Marysville ‐ Investment Policy 11
Transactions Report
Weighted Average Maturity or Duration
10.2 Performance Standards:
The investment portfolio will be designed to obtain a market average rate of return during
economic cycles, taking into account investment risk constraints and cash flow needs. A market
benchmark will be established to compare risk and return of each investment portfolio identified
within each tier.
The earnings benchmark will be the Local Government Investment Pool and an appropriate yield
comparison.
10.3 Compliance Report
A compliance report will be generated quarterly comparing the portfolio positions to this
investment policy.
11.0 INVESTMENT POLICY ADOPTION
The City’s Investment Policy shall be adopted by the City Council and reviewed by the Council
Finance Committee as needed but not less than every three years.
Adopted by Marysville City Council, December 14, 2015.
City of Marysville ‐ Investment Policy 12
12.0 GLOSSARY OF TERMS
Agency Securities: Government sponsored enterprises of the US Government.
Bankers Acceptances: A time draft accepted (endorsed) by a bank or trust company. The accepting
institution guarantees payment of the bill, as well as the issuer. BAs are short‐term non‐interest‐
bearing notes sold at a discount and redeemed by the accepting bank at maturity for full face value.
Bond: An interest‐bearing security issued by a corporation, government, governmental agency, or
other body. It is a form of debt with an interest rate, maturity, and face value, and specific assets
sometimes secure it. Most bonds have a maturity of greater than one year and generally pay interest
semiannually. See Debenture.
Broker: An intermediary who brings buyers and sellers together and handles their orders, generally
charging a commission for this service. In contrast to a principal or a dealer, the broker does not own or
take a position in securities.
Collateral: Securities or other property that a borrower pledges as security for the repayment of a loan.
Also refers to securities pledged by a bank to secure deposits of public monies.
Commercial Paper: Short‐term, unsecured, negotiable promissory notes issued by corporations.
Current Maturity: The amount of time left until an obligation matures. For example, a one‐year bill
issued nine months ago has a current maturity of three months.
CUSIP: A CUSIP number identifies securities. CUSIP stands for Committee on Uniform Security
Identification Procedures, which was established under the auspices of the American Bankers
Association to develop a uniform method of identifying municipal, U.S. government, and corporate
securities.
Dealer: An individual or firm that ordinarily acts as a principal in security transactions. Typically,
dealers buy for their own account and sell to a customer from their inventory. The dealer’s profit is
determined by the difference between the price paid and the price received.
Debenture: Unsecured debt backed only by the integrity of the borrower, not by collateral, and
documented by an agreement called an indenture.
Delivery: Either of two methods of delivering securities: delivery vs. payment and delivery vs. receipt
(also called “free”). Delivery vs. payment is delivery of securities with an exchange of money for the
securities.
Duration: A measure used to calculate the price sensitivity of a bond or portfolio of bonds to changes
in interest rates. This equals the sum of the present value of future cash flows.
Full Faith and Credit: Indicator that the unconditional guarantee of the United States government
backs the repayment of a debt.
General Obligation Bonds (GOs): Bonds secured by the pledge of the municipal issuer’s full faith and
credit, which usually includes unlimited taxing power.
Government Bonds: Securities issued by the federal government; they are obligations of the U.S.
Treasury; also known as “governments.”
Interest: Compensation paid or to be paid for the use of money. The rate of interest is generally
expressed as an annual percentage.
Investment Funds: Core funds are defined as operating fund balance, which exceeds the City’s daily liquidity
needs. Core funds are invested out the yield curve to diversify maturity structure in the overall portfolio. Having
longer term investments in a portfolio will stabilize the overall portfolio interest earnings over interest rate cycles.
City of Marysville ‐ Investment Policy 13
Investment Securities: Securities purchased for an investment portfolio, as opposed to those
purchased for resale to customers.
Liquidity: The ease at which a security can be bought or sold (converted to cash) in the market. A large
number of buyers and sellers and a high volume of trading activity are important components of
liquidity.
Liquidity Component: A percentage of the total portfolio that is dedicated to providing liquidity needs
for the District.
LGIP: Local Government Investment Pool run by the State of Washington Treasurer’s office established
to help cities with short term investments.
Mark to Market: Adjustment of an account or portfolio to reflect actual market price rather than book
price, purchase price or some other valuation.
Municipals: Securities, usually bonds, issued by a state, its agencies, by cities or other municipal
entities. The interest on “munis” is usually exempt from federal income taxes and state and local
income taxes in the state of issuance. Municipal securities may or may not be backed by the issuing
agency’s taxation powers.
Par Value: The value of a security expressed as a specific dollar amount marked on the face of the
security or the amount of money due at maturity. Par value should not be confused with market value.
Portfolio: A collection of securities held by an individual or institution.
Prudent Person Rule: A long‐standing common‐law rule that requires a trustee who is investing for
another to behave in the same way as a prudent individual of reasonable discretion and intelligence
who is seeking a reasonable income and preservation of capital.
Quotation or Quote: A bid to buy or the lowest offer to sell a security in any market at a particular
time.
Repurchase Agreement: Range in maturity from overnight to fixed time to open end. Repos involve a
simultaneous sale of securities by a bank or government securities dealer to an investor with an
agreement for the bank or government securities dealer to repurchase the securities at a fixed date at a
specified rate of interest.
Treasury Bill (T‐Bill): An obligation of the U.S. government with a maturity of one year or less. T‐bills
bear no interest but are sold at a discount.
Treasury Bonds and Notes: Obligations of the U.S. government that bear interest. Notes have
maturities of one to ten years; bonds have longer maturities.
Yield: The annual rate of return on an investment, expressed as a percentage of the investment.
Income yield is obtained by dividing the current dollar income by the current market price for the
security. Net yield, or yield to maturity, is the current income yield minus any premium above par or
plus any discount from par in the purchase price, with the adjustment spread over the period from the
date of purchase to the date of maturity of the bond.
Yield to Maturity: The average annual yield on a security, assuming it is held to maturity; equals to the
rate at which all principal and interest payments would be discounted to produce a present value equal
to the purchase price of the bond.