What is a primary concern for investors when it comes to bonds? The physical size of the bond The income that bonds provide The capital appreciation potential of the bond
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this risk is higher on bond that have long maturities than on bonds that will mature in the near future. risk the risk that a decline in interest rates will lead to a decline in income from a bond portfolio.
Eduard S.
Jack wants to earn some extra income. His friends suggest that he invest in bonds and stocks. What type of income will Jack earn from investing in bonds and stocks? Please answer asap.
Sanchit J.
From an investment point of view, bonds are considered to safer than stocks. They are generally of lower risk offering lower but guaranteed returns unlike stocks. As an investor in bonds, you would lend money to the issuer of the bonds also known as fixed income securities. It is important to understand what bonds are and how they are work as investment vehicles. Suppose a friend of yours is looking to invest $1,000 such that it will provide current income and increase the diversification of his assets. He has heard a lot about municipal bonds but wants to learn more before purchasing them. Fill in the blanks in the following conversation to give your friend the appropriate information regarding municipal bonds. Friend: Can you explain to me the basics of how a municipal bond will increase my current income? You: Under a standard bond agreement, if you were to purchase a 10-year, $1,000 municipal bond with a 3% coupon, you would receive $30.00 in interest each year, and at the end of the 10-year period, you would receive the par value of $1,000.00 . Friend: OK, and am I guaranteed to receive these interest payments and the par value? You: Well, that depends. Within the category of municipal bonds, there are both general obligation bonds, which are guaranteed by the municipality, and revenue bonds, which fund specific projects and are repaid only if the project generates sufficient revenue . Friend: Are there any other general features I should be aware of? You: Municipal bonds tend to have a relatively lower return than other types, in part due to the fact that unlike other bonds, the interest income is subject to federal income taxes. The return also depends on whether the bonds are callable, meaning that the issuer can retire the bond (by paying you back and ceasing to pay interest payments) at any point before the maturity date. Friend: So if the interest rate were to fall and the issuer were able to retire my bond, I would be than if I were to continue holding the bond, because if I reinvest the money the issuer returns to me, I would receive a interest rate. You: Exactly. In such a case, the issuer would pay you a , but this generally would not fully compensate you for your loss. Friend: Got it. Thanks for your help! You: Any time!
Adi S.
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