All About Bonds and Bond Mutual Funds: The Easy Way to Get by Esme Faerber

By Esme Faerber

The typical source of revenue investor does not wish or have to get slowed down in technical discussions of rates of interest and time. So All approximately Bonds and Bond Mutual money supplies them what they want­­a easy but accomplished therapy of bonds and bond cash. in addition to up-to-date bond info, this revised version additionally comprises new fabric on: * Bond mutual cash * Tax-free municipal bonds * overseas bonds and bond cash

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For investors who are concerned with high current income, the current yield is a useful measure. Yield to Maturity The yield to maturity is the discount rate calculated by mathematically equaling the cash flows of the interest payments and principal payments with the price of the bond. This is also referred to as the internal rate of return of the bond. The yield to maturity can be solved easily with the use of a financial calculator, which has built-in financial tables. 5 percent: The process on the financial calculator would be: 1.

Evaluating Bond Characteristics 25 Municipal bonds are issues sold by states, counties, and cities. The main advantage of municipal bonds is their special tax treatment. The interest received from municipal bonds is exempt from federal income tax and from state and/or local tax if issued in that state and county. Corporate bonds are debt obligations of corporations and vary considerably in their features and their risk. Among the hybrids, zero-coupon bonds pay no periodic interest but are issued at a deep discount and are redeemed at face value ($1000) at maturity.

For example, by comparing the yield to maturity of an AAA-rated bond with a BBB-rated bond, the investor can easily see how much the increment in yield would CHAPTER 2 34 be in choosing the lower-rated bond. The investor can also see the yield differential between bonds with different maturities. The yield to maturity does not indicate the price volatility of different coupon bonds with different maturities. When comparing different bonds with different maturities, investors will want to know which bond’s price will fall more when interest rates rise.

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