Next video:
Loading the player...

For a fixed-income security, the periodic return on the investment is the same throughout the life of the security.  Principal is returned at the time of maturity.  The payment can be in the form of a coupon payment, a dividend on preferred stock or an interest payment.

The rate of return is fixed at the time the security is purchased.  Thus, the investor knows exactly how much income he or she will earn from the security.  Because of this certainty, fixed-income securities usually have a lower rate of return than variable-income securities.  Fixed-income securities are especially popular for risk-adverse investors.

Examples of fixed-income securities are treasury bonds, certificates of deposit and preferred stock with a stated dividend rate.

For instance, an investor might own a 30-year treasury bond with a face amount of $1,000 and an interest rate of 4%.  The investor can count on receiving $40 in annual interest payments for 30 years, at which time he or she will receive the final interest payment, plus the return of his $1,000 principal.

Related Articles
  1. Investing

    Beginner's Guide To Trading Fixed Income

    Beginner's Guide To Trading Fixed Income
  2. Investing

    Future CEO? Get Your Start In Fixed Income

    Discover why working in fixed income can be your ticket to the highest professional goals you've set for yourself.
  3. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
  4. Investing

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  5. Investing

    How To Create A Modern Fixed-Income Portfolio

    Exposure to different asset classes is required to generate income, reduce risk and beat inflation. Find out how bonds can help.
  6. Investing

    Introduction to Treasury Securities

    Purchasing bonds that are backed by the full faith and credit of the U.S. government can provide steady guaranteed income and peace of mind. Knowing the characteristics of each type of treasury ...
Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
  3. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
  4. Taxes

    An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government ...
  5. Impaired Asset

    A company's asset that is worth less on the market than the value listed on the company's balance sheet. This will result ...
  6. Solvency Ratio

    One of many ratios used to measure a company's ability to meet long-term obligations. The solvency ratio measures the size ...
Trading Center