What is the difference between a zero-coupon bond and a regular bond?

July 7, 2024 No Comments

A: The difference between a zero-coupon bond and a regular bond is that a zero-coupon bond does not pay coupons or interest payments to the bondholder, while a typical bond does make these interest payments. The holder of a zero-coupon bond only receives the face value of

What is the difference between market risk premium and equity risk premium?

July 7, 2024 No Comments

A: The only meaningful difference between market-risk premium and equity-risk premium is scope. Both terms refer to the same concept and are calculated the same way. Yet the equity-risk premium only refers to stocks, while the market-risk premium refers to all financial instruments. Standard equity-risk

What determines bond prices on the open market?

July 7, 2024 No Comments

A: One of the most basic concepts that investors should become familiar with is how bonds are priced. Bonds do not trade like stocks. The pricing mechanisms that cause changes in the bond market are not nearly as intuitive as seeing a stock or mutual

What does a negative bond yield mean?

July 7, 2024 No Comments

A: If a bond has a negative yield, it means the bondholder loses money on the investment, though this is relatively unusual. Whether a bond has a negative yield largely depends on the type of yield being calculated. Depending on the purposes of the calculation,

What does investment grade mean?

July 7, 2024 No Comments

A: Credit ratings provide a useful measure for comparing fixed-income securities, such as bonds, bills and notes. Most companies are issued a rating based on their financial strength, future prospects and past history. Companies that have manageable levels of debt, good earnings potential and a

What does it mean if a bond has a zero coupon rate?

July 7, 2024 No Comments

A: A bond’s coupon rate is the percentage of its face value payable as interest each year. A bond with a coupon rate of zero, therefore, is one that pays no interest. However, this does not mean the bond yields no profit. Instead, a zero

What are G7 bonds?

July 7, 2024 No Comments

A: G7 Bonds refer to bonds that are issued by the governments of the following seven countries: United States, Canada, France, Italy, United Kingdom, Germany and Japan. These bonds can be purchased on an individual bond basis or in the form of a group of

What does it mean when a bond has a put option?

July 7, 2024 No Comments

A: A put option on a bond is a provision that allows the holder of the bond the right to force the issuer to pay back the principal on the bond. A put option gives the bond holder the ability to receive the principal of

What are some examples of financial markets and their roles?

July 7, 2024 No Comments

A: Some examples of financial markets and their roles include the stock market, the bond market and the real estate market. Financial markets can also be broken down into capital markets, money markets, primary markets and secondary markets. A financial market can be thought of

What Does It Mean When a Bond Has a Sinking Fund?

July 7, 2024 No Comments

A: A sinking fund is a means of repaying funds borrowed through a bond issue through periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market. This provision is really just a pool of money set aside by

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