Macaulay Duration vs. Modified Duration

July 7, 2024 No Comments

A: Macaulay duration and modified duration are mainly used to calculate the durations of bonds. The Macaulay duration calculates the weighted average time before a bondholder would receive the bond’s cash flows. Conversely, modified duration measures the price sensitivity of a bond when there is

Par Value Stock vs No Par Value Stock

July 7, 2024 No Comments

A: The par value of a stock is the stated value per share as outlined in the issuing company’s charter. Also called “face value” (because it’s the value printed on the face of a bond or stock certificate), the par value of a stock represents

How Is Par Value Affected When a Bond Price Falls?

July 7, 2024 No Comments

A: When you buy a bond, you are loaning money to the issuer. Since a bond is a loan, the interest paid to the bondholder is payment for lending the money. The interest payable is stated as a percentage of the amount borrowed, known as the

How is the interest rate on a treasury bond determined?

July 7, 2024 No Comments

A: The yield of U.S. Treasury securities, including Treasury bonds (T-bonds), depends on three factors: the face value of the security, how much the security was purchased for and how long it is until the maturity of the security. Many external factors influence Treasury prices

How is the risk-free rate determined when calculating market risk premium?

July 7, 2024 No Comments

A: The risk-free rate is the rate of return of an investment with no risk of loss. Most often, either the current Treasury bill, or T-bill, rate or long-term government bond yield are used as the risk-free rate. T-bills are considered nearly free of default

How Do Low Rates Affect the Demand for Bonds?

July 7, 2024 No Comments

A: The lower interest rates that are found on bonds, especially government-backed bonds, are often not seen as enough by investors. This is the main driving force behind certain investors not wanting to invest in bonds. The Impact of Low Rates on Bond Investing Many investors

How long are credit ratings valid?

July 7, 2024 No Comments

A: When a company, government agency or municipality issues any debt security, a credit rating is usually sought. The rating is published so investors can judge the creditworthiness of the issuer and determine more effectively the risks associated with investing in debt from that issuer.

How does a bull market in stocks affect the bond market?

July 7, 2024 No Comments

A: Bonds and stocks compete for investment money at a fundamental level, which suggests that a strengthening equity market would attract funds away from bonds. This would tend to lower the demand for bonds; sellers would have to lower prices to attract buyers. Theoretically, the

How long has the U.S. run fiscal deficits?

July 7, 2024 No Comments

The United States began its history indebted, owing more than $70 million to the French and Dutch after the end of the Revolutionary War in 1783. However, the first actual fiscal deficit in the federal ledger was not run until the end of that decade.

How Does a Person Gain From an Investment?

July 7, 2024 No Comments

A: There are two main ways in which a person gains from an investment. The first is by capital gains, which is the difference between the purchase price and the sale price of an investment. The second is investment income, defined as the money paid

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