April 14th, 2008
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In the U.S.A., there are two popular types of saving bonds, the I series bonds and the EE series bonds. Both these bonds dole out a specific interest rate over the course of two years, with the interest being compounded on a semi-annual basis. However, that’s where the similirities end.
Series I bonds have the cost of their face value, with no guarantees to the specific value of the bond at any given time. The interest payment is comprised of two specific components: the non-variable interest payment and the variable interest payment. Both factors are based on the inflation index of the US economy. The most selling point of the I-bond is that they are protected against inflation risks, and moreover, should the inflation rate go up, the variable interest rate will follow suit.
Series EE bonds on the other hand usually cost the half of its face value. It pays out a fixed interest rate over 30 years. This may seem like an unproductive strategy but hold on. Series EE bonds are also guaranteed to double their value in 20 years, thus making the bond worth its face value. Supposing the interest rate of the bond is on the low end and cannot meet the doubled value within the twenty years, there will be a one-time payment added to the bond in question just to be able to meet the face value.
Choosing which is preferable depends on the circumstances and of course, inflation rate. If a double digit inflation hits the country, then being in the Series I bonds is a blessing, as it offers inflation protection. However, if interests rates are on the low end, the EE series is more dependable due to their guaranteed double value in the twentieth year.
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A bond is a debt security that is sold to the public in set nominal values. Basically, it is interest-bearing money people lend to institutions such as the government or private firms. The interest rate is usually fixed, which means that no matter who holds the bond, the amount of income will remain the same. A bond is objectified by a piece of paper stating the principal amount that was borrowed, the agreed-upon rate of interest, and the term/maturity of the bond.
Bond investing operates on a simple basis. By purchasing a bond from the government, the bond bearer lends them money in exchange for receiving a fixed monthly income equivalent to the rate of interest times the principal amount. The bond bearer continues to receive interest until the bond matures, wherein he/she will get back the face value, or principal amount. (more…)
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A good number of investment analysts for bonds investing lean towards using a pretax income number for reasons that are almost the same as that of operating income.
The difference is that in this case, a company is allowed a number of different tax-management techniques. This allows for the manipulation of the timing and extent of the income that is taxable.
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Operating Income is taken when the SG&A, or selling, general, and administrative, is subtracted as expenses from a company’s gross profit number. The management usually has some more control over operating expenses as opposed to its cost of sales. This is why investors require the careful scrutiny of operating profit margins. Both positive and negative trends for this kind of ratio are mostly derived from the decisions of the management.
The operating income figure of a company is usually the favored measure, as it is more reliable. Preferred by investment analysts, this figure is usually chosen over its net income figure as it creates financial projections and inter-company comparisons.
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Net profit margin is more popularly known as the profit margin of a company. This is vital in bonds investments as the bottom line is quite often the main topic of discussion with regards to a company’s capacity to produce profit.
With regards to investing in bonds, this is a crucial number. But given that, investors can quickly see from a comprehensive profit margin analysis that there are a few income and expense operating elements within an income statement. These elements determine what is called the net profit margin. It allows investors to be able to actually see a company’s profit margins on an organized basis.
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