Fixed Income
Explanation: Fixed income refers to types of investment securities that pay investors fixed interest or dividend payments until their maturity date. Upon maturity, investors are repaid the principal amount they invested. Fixed-income investments are typically lower risk than equities and are used to provide steady income. Examples include government and corporate bonds, treasury bills, and certificates of deposit.
Example: An investor purchases a $10,000 corporate bond with a 5% annual interest rate and a maturity of 10 years. The investor receives $500 in interest each year for 10 years and gets back the $10,000 principal at the end of the term.
Reference Link: For more information on fixed income, visit Investopedia’s Fixed Income.
FAQs:
- What are the benefits of fixed-income investments?
- Benefits include predictable income, lower risk compared to stocks, and capital preservation.
- What are the risks associated with fixed-income investments?
- Risks include interest rate risk, credit risk, and inflation risk.
- How do interest rate changes affect fixed-income investments?
- Rising interest rates can decrease the market value of existing fixed-income securities, while falling rates can increase their value.
- What types of fixed-income securities are available?
- Options include government bonds, corporate bonds, municipal bonds, treasury bills, and certificates of deposit (CDs).
- Are fixed-income investments suitable for all investors?
- They are generally suitable for conservative investors seeking stable income and lower risk, but not ideal for those seeking high returns.