Financial Wealth Ideas

Bond investors have interest income, which can be fixed, floating or payable at maturity. For the majority of debt is set interest rate, which remains at the same level prior to maturity and is calculated as a percentage of the nominal value of the securities (fixed rate). Typically, bondholders receive interest payments every six months. For example, the owner of bonds worth $ 1000 with a rate of 8% will receive $ 80 a year - to $ 40 every 6 months. When the maturity of the bonds, the investor receives an amount equal to its face value - $ 1000. Some investors prefer the securities, the interest rate that can be adjusted and better reflects current levels of market rates. There are bonds with a so-called "floating" rate (floating rate), which appears periodically in line with changes in base interest rates, such as rates on Treasury bills. In addition, there are paper, the so-called "zero coupon bonds" (zero-coupon bonds), which, unlike conventional bonds do not require regular interest payments. Instead, these bonds are sold with a substantial discount to face value. At the U.S. bond market turning 3 basic types of zero coupon bonds: Treasury zero coupon bonds, corporate bonds and zero coupon municipal bonds with no coupons. Treasury zero coupon bonds are generally considered the least risky of the three types of securities, since they are fully guaranteed by the federal government. Corporate zero coupon bonds offer potentially higher returns to compensate for added risk, the extent of which varies depending on the issuer. The credit quality. Bonds may have a variety of credit quality: from the treasury obligations fully guaranteed by the U.S. government, to bonds rated below investment grade, which are regarded as speculative. Issuing bonds, the issuer must provide detailed information on its financial position and solvency. This information is contained in the prospectus, but it is difficult to draw a conclusion as to whether the company or government agency can pay regular interest payments over 5, 10, 20 or 30 years after issuance. To help come to the rating agencies that assign many bonds rated at the time of issue and then monitor them during their life cycle. Brokerage firms and banks also have a staff of analysts who track the ability (and willingness) of various companies and other issuers to pay interest and at maturity repurchase securities at nominal value. The leading rating agencies are Moody's Investors Service, Standard & Poor's Corporation and Fitch. Each of the agencies assign bond ratings on its own system, based on a thorough analysis of the financial situation of the issuer, quality management, economic factors and the specific sources of income to guarantee payments on bonds. The highest rating is "AAA" (S & P and Fitch) and Aaa (Moody's). Bonds with a rating category of "BBB" or higher are considered investment grade bonds, bonds with a rating of "BB" or below are considered high-yield bonds, or bonds below investment grade. While experience shows that a diversified portfolio of high yield bonds in the long run has a very low risk of default, it is extremely important to realize that for every bond taken in isolation, high yield, usually accompanies a low rating, is a wake-up call, warning of a higher risk. Usually, the agency signals that are considering changing the rating of the bonds, putting them in a list of carefully monitored securities: CreditWatch (S & P), Under Review (Moody's) or the Rating Watch (Fitch).