By Esme Faerber
The common 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 provides them what they wanta basic but entire therapy of bonds and bond money. besides up-to-date bond details, this revised variation additionally contains new fabric on: * Bond mutual money * Tax-free municipal bonds * overseas bonds and bond money
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Similarly, when the bond has a call feature, investors can calculate the yield to call by substituting the call price for the maturity price in the equation. The yield-to-maturity rate assumes that the investor will reinvest the interest received at the same yield to maturity. If this does not occur, the investor’s actual rate of return will differ from the quoted yield-to-maturity rate. For example, if the interest received is spent and not reinvested, the interest does not earn interest, and the investor will earn much less than the stated yield to maturity.
Interest payments received may be reinvested at a lower interest rate than the coupon rate of the bond, particularly if market rates of interest decline or have declined. Zero-coupon bonds, which make no periodic interest payments, have no reinvestment risk. Foreign Currency Risk If you decide to escape it all by investing in foreign bonds, these are subject to foreign currency risk. A rise in the dollar against a foreign currency can decimate any returns and result in a loss in principal when the bond matures.
However, these ratings provide only a relative guide for investors, because the financial status of the issuer could deteriorate over time and result in the issue being downgraded to a lower rating. A downgrading usually causes a decline in the market price of the bond. The opposite occurs when a bond issue is upgraded. The same issuer with many different bond issues outstanding could have different ratings for each issue. For example, in May 1999, Moody’s Investors Service downgraded ContiFinancial Corporation’s senior unsecured debt from B1 to Caa1.