What is accrued interest, and why do I have to pay it when I buy a bond?

July 7, 2024 No Comments

A: A bond represents a debt obligation whereby the owner (the lender) receives compensation in the form of interest payments. These interest payments, known as coupons, are typically paid every six months. During this period the ownership of the bonds can be freely transferred between

What are the risks associated with investing in a treasury bond?

July 7, 2024 No Comments

A: It’s common for financial analysts and investment publications to refer to U.S. Treasury bonds (T-bonds) as risk-free investments. This designation is approximately true and, at the same time, misleading. Thanks to the Federal Reserves’ implicit backing of all Treasury Department obligations, there is virtually

What is the difference between a debenture and a bond?

July 7, 2024 No Comments

A: Debentures and bonds are types of debt instruments that can be issued by a company. In some markets (India, for instance) the two terms are interchangeable, but in the U.S., they refer to two separate kinds of debt securities. The functional differences center around

What are the risks of investing in a bond?

July 7, 2024 No Comments

A: The most well-known risk in the bond market is interest rate risk – the risk that bond prices will fall as interest rates rise. By buying a bond, the bondholder has committed to receiving a fixed rate of return for a set period. Should the market

What is the difference between a gilt edged bond and a regular bond?

July 7, 2024 No Comments

A: A gilt edged bond is a high-grade bond issue. The term “gilt” is of British origin and originally referred to debt securities issued by the Bank of England. Gilt edged bonds traditionally applied to bonds issued by governments of the United Kingdom, South Africa

What assets are taxable and what assets are not taxable?

July 7, 2024 No Comments

A: Most types of income are taxable by the Internal Revenue Service (IRS). In fact, all income is taxable unless it is specifically mentioned in the Internal Revenue Code as not taxable. Some examples of taxable income include gains from stock accounts, real estate capital

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 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

All Rights Reserved