What are the pros and cons of operating on a balanced-budget?

July 7, 2024 No Comments

A: Few issues are more complicated, contentious and controversial in contemporary American politics than balancing the federal government’s budget. Those who argue in favor of a balanced budget offer many claims about the deleterious impacts of huge federal debt. Others counter that balanced budgets would

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

The Differences Between a Collateralized Debt Obligation (CDO) and an Asset Backed Security (ABS)

July 7, 2024 No Comments

A: An asset-backed security (ABS) is a security created by pooling non-mortgage assets that is then resold to investors. A collateralized debt obligation (CDO) is a complex type of ABS that can be based on non-mortgage assets, mortgage assets or both together. Understanding the Differences

The interest rate used to define the “risk-free” rate of return is the

July 7, 2024 No Comments

A: a. discount rate. b. 90-day Treasury bill rate. c. five-year Treasury note rate. d. federal funds rate. Answers: b The 90-day Treasury bill rate is used because there is no credit risk, and the maturity is so short that there is no liquidity or

To what extent are utility stocks affected by changes in interest rates?

July 7, 2024 No Comments

A: Utility stocks are definitely subject to interest rate risk and can be significantly impacted by changes in interest rates. Competition With Bonds Utility firms can be adversely affected by rising interest rates in two ways. First, rising interest rates make investing in bonds more

Treasury Bond vs Treasury Note vs Treasury Bill

July 7, 2024 No Comments

A: The U.S. federal government offers three categories of fixed income securities to the buying public: Treasury bonds (T-bonds), Treasury notes (T-notes) and Treasury bills (T-bills). Each of these securities is issued with the full faith and credit of the U.S. government, and they are used

Under what circumstances might an issuer redeem a callable bond?

July 7, 2024 No Comments

A: The primary circumstance under which a bond issuer redeems a callable bond is a drop in interest rates. When rates fall, it makes no sense for the bond issuer to continue paying higher-than-average interest to investors when a provision in the bond allows for

Understanding the Effects of Fiscal Deficits on an Economy

July 7, 2024 No Comments

A: Fiscal deficits arise whenever a government spends more money than it brings in during the fiscal year. This imbalance, sometimes called the current accounts deficit or the budget deficit, is common among contemporary governments all over the world. Since 1970, the U.S. government has

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