The Basics Of Bond Duration
Duration tells investors the length of time, in years, that it will take a bond's cash flows to repay the investor the price he or she paid for the bond.
A bond’s duration tells investors how much a bond's price might change when interest rates change i.e. how much risk they face from interest rate changes.
An interest rate is the cost of borrowing money, expressed as a percentage of the loan amount. Interest rates are the primary yardstick for measuring how much return lenders will get. However, the stated interest rate on a loan, sometimes called the nominal rate, doesn't tell the whole story.
A convertible bond is a bond the investor can exchange for a specific amount of company stock at a later date. It combines a bond and a call option. The bondholder can benefit if there's an increase in the stock's value. The amount of stock that a bondholder can acquire is subject to a pre-determined formula.
A zero-coupon bond or ‘no coupon’ bond is one that does not disburse regular interest payments. Instead, the investor buys the bond at a steep discount price; that is, at a price lower than its face value. When the bond matures, the investor receives the principal amount or face value. Common zero-coupon instruments include U.S.
Find out what bonds can do for your investment portfolio.
Find out the aspects of each of these popular investment vehicles and how they can work for you.
Find out how this method of debt investment is used to finance various levels of government and private companies.
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