If I buy a $1,000 bond with a coupon of 10% and a maturity in 10 years, will I receive $100 each year regardless of what the yield is?

July 7, 2024 No Comments

A: Simply put: yes, you will. The beauty of a fixed-income security is that the investor can expect to receive a certain amount of cash, provided the bond or debt instrument is held until maturity (and its issuer does not default). Most bonds pay interest

Interest Rate Risk Between Long-Term and Short-Term Bonds

July 7, 2024 No Comments

A: The answer to this question lies in the fixed income nature of bonds and debentures, often referred to together simply as “bonds.” When an investor purchases a given corporate bond, for instance, they are actually purchasing a portion of a company’s debt. This debt

How does the money from the interest on my bond get to me?

July 7, 2024 No Comments

A: When you buy a regular coupon bond, you are entitled to a coupon, which is typically paid at regular intervals, and the face value of the bond (the amount you initially invested), which is typically paid upon maturity. Most coupons are paid on a

Is variance good or bad for stock investors?

July 7, 2024 No Comments

Variance is neither good nor bad for investors in and of itself. However, high variance in a stock is associated with higher risk, along with a higher return. Low variance is associated with lower risk and a lower return. High variance stocks tend to be

How is a corporate bond taxed?

July 7, 2024 No Comments

A: A corporate bond is taxed through the interest earned on the bond, through capital gains or losses earned in the early sale of the bond, and through an original issue discount. The aggregate taxes owed on each of these components adds up to equal

Knowing the Difference Between EE and I Bonds

July 7, 2024 No Comments

A: Both EE and I bonds are part of the U.S. Treasury’s savings bond program, which is designed to offer low-risk investments with tax advantages. Despite their similarities, Series EE bonds and Series I bonds are very different financial products in practice. The EE bond program is

How is a debenture stock different from a regular debenture?

July 7, 2024 No Comments

A: Private businesses and governments sometimes issue debt securities to raise additional capital. These debt instruments are called debentures whenever they are not secured by any form of collateral. Debentures, which otherwise act much like any other kind of bond, are ostensibly only backed by

Learn to Calculate Yield to Maturity in MS Excel

July 7, 2024 No Comments

A: In order to understand yield to maturity (YTM), we first need to discuss how to price a bond in general. The price of a traditional bond is the present value of all future cash flows the bond delivers (interest payments), plus the repayment of principal

How is bond yield affected by monetary policy?

July 7, 2024 No Comments

A: Bond yields are significantly affected by monetary policy. Monetary policy at its core is about determining interest rates. In turn, interest rates define the risk-free rate of return. The risk-free rate of return has a large impact on the demand for all types of

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

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