What is Dollar Duration? Dollar duration is a financial concept that measures the sensitivity of the price of a fixed-income security to changes in interest rates. It is a useful metric for investors and portfolio managers to assess the potential impact of interest rate fluctuations on their bond holdings. Dollar … …
Definition of Discounts A discount is a reduction in price or cost that is offered to customers as an incentive to purchase a product or service. It is a common marketing strategy used by businesses to attract customers and increase sales. Discounts can take various forms, such as a percentage … …
Types of Debenture 5. Redeemable Debentures: Redeemable debentures are debentures that have a fixed maturity date at which the principal amount is repaid to the debenture holders. These debentures are typically issued for a specific period of time, after which they are redeemed by the issuing company. Redeemable debentures provide … …
Exploring the Role of Creditors in Financial Transactions One of the primary roles of creditors is to assess the creditworthiness of borrowers. Before extending credit, creditors evaluate the financial stability and repayment capacity of borrowers. They consider factors such as income, credit history, and existing debt obligations. This assessment helps … …
What is Convexity in Bonds? Convexity in bonds is a measure of the curvature of the relationship between bond prices and interest rates. It is an important concept in fixed income investing as it helps investors understand how the price of a bond will change in response to changes in … …
Working Principles Amortized bonds are a type of fixed-income investment that involves the gradual repayment of the principal amount over the life of the bond. This repayment is achieved through a combination of periodic interest payments and a portion of the principal being paid off with each payment. The working … …
Tax Benefits of Amortizable Bond Premium One of the main tax benefits of amortizable bond premium is that it can help reduce your taxable income. By deducting the amortizable bond premium from your taxable income, you can lower your overall tax liability. This can be particularly beneficial for individuals in … …
What is Unamortized Bond Premium? Unamortized bond premium refers to the portion of a bond’s purchase price that exceeds its face value. When an investor buys a bond at a price higher than its face value, the difference between the purchase price and the face value is considered the bond … …
U.S. Savings Bonds: A Comprehensive Guide Definition U.S. Savings Bonds are debt securities issued by the U.S. Department of the Treasury. They are considered one of the safest investments available because they are backed by the full faith and credit of the U.S. government. This means that the government guarantees … …
Fixed Income Benefits of Investing in Fixed Income Notes: Lower Risk: Compared to other investment options, fixed income notes are generally considered to have lower risk due to their predictable nature and the issuer’s creditworthiness. Diversification: Adding fixed income notes to your investment portfolio can help diversify your risk and … …
Treasury Yield Factors Economic Conditions: The state of the economy plays a significant role in determining treasury yields. When the economy is strong and growing, investors may demand higher yields to compensate for the potential inflationary pressures. Conversely, during economic downturns, investors may seek the safety of treasury bonds, leading … …
Treasury Investment Guide Treasury investments are an important asset class that can provide stability and consistent returns. They involve investing in government securities, such as treasury bills, notes, and bonds, issued by the government to finance its operations and manage its debt. The definition of treasury investment The benefits and … …
Benefits of Investing in Treasury Inflation-Protected Securities (TIPS) Investing in Treasury Inflation-Protected Securities (TIPS) can provide several benefits for investors. Here are some key advantages of including TIPS in your investment portfolio: Inflation Protection: TIPS are specifically designed to protect investors from the negative effects of inflation. The principal value … …
Treasury Bond Overview A treasury bond is a type of fixed-income security that is issued by the United States government. It is considered one of the safest investments available because it is backed by the full faith and credit of the US government. Treasury bonds are issued with a fixed … …
Treasury Bills: A Comprehensive Guide to Investing What are Treasury Bills? Treasury Bills are issued by the U.S. Department of the Treasury and have a maturity period of less than one year. They are sold at a discount from their face value and do not pay regular interest like other … …
What is a Time Deposit? Unlike a regular savings account, which allows for easy access to funds, a time deposit has a fixed term and typically offers a higher interest rate. This makes it an attractive option for individuals looking to earn a higher return on their savings. Features of … …
The Bond Market and Debt Securities: A Comprehensive Guide A debt security is a financial instrument that represents a loan made by an investor to a borrower. When an entity needs to raise funds, it can issue debt securities in the form of bonds. Bonds are essentially IOUs, where the … …
Term Deposit: Definition and Usage Definition Usage Term deposits are commonly used by individuals who want to earn a higher interest rate on their savings compared to a regular savings account. They are particularly popular among risk-averse investors who prioritize the safety of their principal amount. Term deposits provide a … …
Roll-Down Return: Explained, Mechanism, Illustration The roll-down return is a concept in fixed income investing that refers to the potential profit generated from holding a bond until maturity. It is based on the idea that as a bond approaches its maturity date, its yield to maturity (YTM) decreases, resulting in … …
What is a Repurchase Agreement? Repurchase agreements are commonly used in the financial markets to raise short-term funds. They are particularly popular among banks, hedge funds, and other financial institutions. These agreements provide liquidity and allow market participants to manage their short-term cash needs or invest excess cash. Definition, Examples, … …
Principal Definition in Loans Bonds Investments and Transactions What is Principal? Principal refers to the original amount of money that is borrowed, invested, or transacted. It represents the initial sum of money involved in a financial transaction before any interest, returns, or profits are added or subtracted. In the case … …
What is Price Value of a Basis Point (PVBP) and How It is Used in Fixed Income Definition of Price Value of a Basis Point (PVBP) The PVBP is calculated by taking the derivative of the bond’s price with respect to its yield, multiplied by the bond’s face value. Mathematically, … …
What is a Perpetual Bond? One of the key features of perpetual bonds is that they are not required to be repaid by the issuer. This means that the issuer does not have to worry about refinancing or repaying the principal amount. As a result, perpetual bonds are often considered … …
What is Original Issue Discount (OID)? Original Issue Discount (OID) refers to the difference between the face value of a debt instrument and its issue price. It is a form of interest income that is earned over the life of the debt instrument, but is not paid periodically like traditional … …
What is Operation Twist? Operation Twist is a monetary policy tool used by central banks, particularly the Federal Reserve in the United States, to influence interest rates and stimulate economic growth. It involves the buying and selling of government securities in order to manipulate the yield curve. The Purpose of … …
Nominal Yield Definition and How it Works The nominal yield represents the fixed income that an investor can expect to receive from a bond. It is determined at the time of issuance and remains constant throughout the life of the bond. For example, if a bond has a face value … …
What is Net Interest Income? Net Interest Income is a financial metric that measures the difference between the interest income earned by a financial institution and the interest expenses it incurs on its borrowings and deposits. It is a key indicator of a bank’s profitability and is often used by … …
Negative Covenant Definition and Examples A negative covenant is a type of agreement or restriction that is included in a contract or bond issue. It is designed to protect the interests of the bondholders or lenders by limiting the actions that the issuer or borrower can take. The purpose of … …
Negative Convexity: What is it? Negative convexity is a concept in the field of fixed income that refers to the relationship between bond prices and interest rates. When a bond has negative convexity, it means that the bond’s price does not increase as much as it decreases when interest rates … …