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

    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.
  2. Investing

    Corporate Bonds: Advantages and Disadvantages

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

    Inflation Protected Securities: How They Work

    Learn how the U.S. Treasury inflation-protected securities (TIPS) work, which considerations investors should keep in mind and for whom TIPS are most suitable.
  4. Investing

    Comparing Yield To Maturity And The Coupon Rate

    Investors base investing decisions and strategies on yield to maturity more so than coupon rates.
  5. Investing

    Four Ways Boomers Benefit from Rising Rates

    Here are four ways that Baby Boomers can take advantage of rising interest rates.
Hot Definitions
  1. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  2. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  3. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  4. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  5. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  6. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
Trading Center