February 2008
You are currently browsing the articles from Investing in Bonds written in the month of February 2008.
More common bond transactions are usually completed through a full service or discount brokerage. It is also possible to open an account with the aid of a bond broker, just be mindful that a majority of bond brokers require a minimum initial deposit of $5,000. If this option, given the situation that it might be pricey for you is not viable, you may opt to try a mutual fund that specializes in bonds. This is oftentimes called a bond fund.
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Written by admin on February 28th, 2008 with no comments.
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A figure that reflects the return you get on a bond is what is known a yield. The most basic permutation of yield is calculated with the help of the following formula: yield = coupon amount/price. Yield will be equal to the interest rate when you buy a bond at par. But the moment the price tag changes, so does the yield.
An example of this would be something like this: lets say a buyer buys a bond with a 10% coupon for its par value of $1,000. The basic hindsight is that it is pretty basic, but complications occur for certain events, say when the price goes down to $800. This would have the yield go up to 12.5%. This happens because you are getting the same $100 that is guaranteed on an asset that is worth $800. On the flip side, if the bond goes up in price and reaches $1,200, then the yield will go down to 8.33%.
Written by admin on February 22nd, 2008 with no comments.
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Whenever a bond investors refer to yield, usually what they are referring to is the yield to maturity. Yield to maturity is a more complicated and advanced calculation of yield that reflects the total amount of return you will receive if you hold the bond to maturity. It levels all the interest payments that you will receive and will assume that you will opt to reinvest the payment for interest at the exact same rate as the current yield on the bond. Also, any gain purchased at a discount or loss if purchased at premium will undergo the same process.
Learning how to calculate yield to maturity is not significant at this point. In fact, the calculation is actually very technical. The key point to understand is that yield to maturity is more accurate and allows you to be able to compare bonds with many different maturities and coupons.
Written by admin on February 22nd, 2008 with no comments.
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Investment bonds in the past gave a choice of nearly half a dozen “unit linked” funds that covered many different types of investments. These included UK equities or shares, commercial property, overseas equities, fixed interest securities and cash. Investors were able to pick a combination of funds and go back and forth between them a number of times annually without being charged. Investors could also opt for a managed fund which had a combination of a few different investments, investments like equities, bonds, property, or even cash.
In the 1990s, investments with profits began to be known and started to become popular. Similar to managed funds, with profits funds invest in varying investments. The difference here is that the way the gains and losses on these investments are passed on to investors. Bonuses that were decided by insurance companies became a means of how returns are distributed. The aim of these bonds that came with profits was to streamline the returns so investors would not be subject to so much impact of the fluctuations that occur when they invest in the stock market. However, after the fall of the stockmarket between 2000 and 2003, a large number of insurance companies had to cut their offered bonuses drastically. This led to investors losing money and the process of with profit bonds falling out of favor.
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Written by admin on February 20th, 2008 with no comments.
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In general terms, a risk-return trade off is the principle of a potential return rising with an increase in risk. Low risk, where there is a low level of uncertainty, are normally associated with low potential returns. High levels of uncertainty on the other hand, are associated with high potential returns. In accordance with risk-return trade offs, invested money can yield higher profits only if it is subjected to higher risks of being lost.
This means that due to the risk-return trade off, an investor must always be aware of your tolerance for personal risks when deciding on investments for your portfolio. Subjecting yourself to some risk is the price to pay for reaping solid returns. So in investments, if you want to make money, you really cannot fully discount all risks as they can provide you with bigger earnings. The technique of more experienced investors is to look for an appropriate balance, where the potential earnings are meaningful for you but the risks are just enough that it doesn’t leave you anxious and agitated.
Written by admin on February 19th, 2008 with no comments.
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Deciding on the issuer of a bond is a very important factor to consider with regards to your investments, as your assurance and peace of mind about getting paid back largely depends on the stability of your issuer.
A base example of this would be between the U.S. Government against a regular corporation, where the U.S. Government would of course be far more secure than a corporation. The default risk – the likely chance of the debt not being paid back – is very small that U.S. Government securities are considered as risk-free assets. This is because the government will always be able to bring in revenue in the future in the form of taxation, whereas a company on the other hand would have to continue to make profits, which is not always a guaranteed thing. This also explains why corporate bonds offer a higher yield, because the added risk might not draw in any investors. This practice is known within the investment circles as the risk/return trade off.
The bond rating system allows investors to determine the credit risk that a company might have. Akin to a report card, bond ratings in general evaluate a company’s credit rating. Higher rating companies, otherwise known as blue-chip firms, are of course considered safer for investors, while risky companies are subject to lower ratings. Major rating agencies are also present in the United States to aid these situations, with the most familiar ones being Moody’s, Standard and Poor’s, and Fitch Ratings.
Written by admin on February 19th, 2008 with no comments.
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A yield curve is one of the more commonly used functions in the field of finance. It is the relation between the interest rate (or the cost of borrowing) and the time of maturity of a particular debt for a given borrrower in a particular currency.
When it comes to investment, yield curve is used by those looking for a fixed income– specifically those who carefully study bonds and other related securities in order to understand the conditions in the financial markets while also looking for trade opportunities.
What most bond traders do is, they carefully watch the movements of the current US dollar interest rates paid on Treasury securities, and plotting them in a mathematical graph to determine the most profitable selling/trading price. A common mathematical description of the yield curve is the term structure of interest rates.
In investing, the yield of a given debt instrument is also the annualized percentage increase of investment value. For example, a bank account that pays a 3.5% interest rate in one year will gain 3.5% yield. More importantly, the earned percentage in a year depends on the longevity or length of time in which the money/bond is invested.
Written by admin on February 14th, 2008 with no comments.
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In the world where corporations make the financial world go round, investing or investments is a terminology everyone should aware of . In the case of bonds, investing is everything.
Investing is a term often used in relation to business management, finance and economics, as well as consumption and savings. Theoretically, it is defined as the act of laying out money or capital in a well-thought out enterprise with the expectation of making a profit. In layman’s terms, it is the process of using money to make more money.
Usually, an asset (such as machinery and equipment ) is purchased , in the expectation of making a future return from the use of said asset. Investment can also come in the form of a bank deposit, where money is kept for an indefinite period of time, where it shall earn interest, therefore making the principal sum increase in value.
Investing is committing a particular amount of money, time and effort into something (usually a business endeavor), with the hope of making something more out of it, or appreciate. For bonds investing, a bond is sold or invested in the hope of getting income from the interest earned, or a cut from the higher market value.
Written by admin on February 11th, 2008 with no comments.
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