By Esme Faerber

ISBN-10: 0071544275

ISBN-13: 9780071544276

ISBN-10: 0071544283

ISBN-13: 9780071544283

Access the extraordinary capability of bond making an investment!

Bonds have come some distance in recent times. now not only a particularly secure and safe funding, bonds now supply the possibility of capital appreciation as well as curiosity source of revenue. All approximately Bonds, Bond Mutual money, and Bond ETFs is the main to knowing either conventional and new sorts of bond investments.

This exact yet available creation covers every thing from easy bond features to fixed-income funding ideas. you will achieve an intensive schooling on such subject matters as yield, liquidity, period, convexity, valuation, and rising markets and locate the solutions to many questions a bond investor will ask, such as:

  • What percent of my portfolio might be devoted to bonds?
  • What are the most recent items and the place do i locate them?
  • What are the hazards concerned with making an investment in bonds, bond mutual cash and bond ETFs?
  • How am i able to use the net to my advantage?

Whether you are all in favour of the bond marketplace already or approximately to go into it, All approximately Bonds, Bond Mutual money, and Bond ETFs will consultant you notwithstanding the method of selecting the simplest bonds in your wishes, comparing their functionality, and dealing with a bond portfolio.

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Additional resources for All About Bonds, Bond Mutual Funds, and Bond ETFs

Example text

A bond trades at a premium when its coupon rate is higher than market rates of interest. Premium. A bond generally trades at a premium when its yield to maturity is lower than its coupon rate. Interest Rates and Maturity A second reason for the fluctuations in bond prices is the relationship between interest rates and the length of time to maturity. Some bonds are more sensitive to changes in interest rates than other bonds because of their different maturities. For example, two bonds with the same coupon rate but different maturities react differently to changes in interest rates.

The basic disadvantage of both bond ETFs and bond mutual funds is that the investor has no control over the amount of income or capital gains received. With an individual bond portfolio, an investor can choose higher-yielding bonds to receive greater income or hold bonds through maturity to avoid capital gains. Bond ETFs, however, give investors a flexible alternative to investing in individual bonds or bond mutual funds. This page intentionally left blank CHAPTER 3 Risks of Bonds KEY CONCEPTS ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Interest rate risk Default or credit risk Call or sinking fund risk Purchasing power risk Reinvestment rate risk Currency or exchange rate risk Liquidity risk Prepayment risk Political risk Event risk Risk of bond mutual funds Risks of bond exchange-traded funds (ETFs) The misconception many investors have about investing in bonds is that this class of investment carries no risk.

Prepayment risk occurs when market rates of interest decline and mortgage owners pay off their old mortgages and refinance their homes with new lower interest mortgages. Mortgages that are part of a pool of mortgages are packaged and sold to investors. Consequently, when owners of mortgages refinance, investors in the pool of mortgages have their principal returned to them. A similar risk occurs when mortgage owners make additional principal payments on their loans, resulting in investors in the pool Risks of Bonds 37 receiving their principal faster, which is then reinvested at lower rates of return.

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All About Bonds, Bond Mutual Funds, and Bond ETFs by Esme Faerber


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