Bonds can help diversify your portfolio, but they are not risk-free. You can learn to identify and evaluate the risks and see if they work to your advantage or disadvantage. Find out more about how bonds work and how to put them to work for you. Risk in the bond market Bonds have tw...
Most bonds can be traded on the secondary market after you buy them. Understanding the relationship between the yield of your bond and its price will give you a full picture of what you own and how to use its value to your best advantage. You'll be able to see beyond the coupon paymen...
Using a bond's duration to gauge interest rate risk While no one can predict the future direction of interest rates, examining the "duration" of each bond, bond fund, or bond ETF you own provides a good estimate of how sensitive your fixed income holdings are to a potential change in int...
Investing by Following the Crowd Other people believe that they should invest for the long run but don’t know where to begin. Before learning about how the stock market works, they look at investing like some sort of magic that only a few people know how to use. More often than not,...
This means that whether you’ve used up your total deductible in the past year or not, at the start of next year, the amount will restart to what is stated in the plan. To better comprehend what a deductible is and how it works, let’s take a look at an example. ...
The mechanics of bonds How do bonds make money for you? Bonds (with the exception of zero coupon bonds discussed below) pay out a regular stream of interest known as coupon payments. There are several ways the bond issuer can go about this, depending on the type of bond. Below are some...
If, when a company issues a new bond, it receives the face value of the security, the bond is said to have been issued at par. If the issuer receives less than the face value for the security, it is issued at adiscount. If the issuer receives more than the face value for the secu...
The bids with the lowestyieldwill be accepted first, since the issuer will prefer to pay lower yields to its bond investors. In this case, since the Treasury is looking to raise $9 million, it will accept the bids with the lowest yield up to 5.07%. At this mark, only $2 million of...
We will give you a better understanding of how the Sharpe ratio works, starting with its formula: Sharpe Ratio Formula Return (rx) The measured returns can be of any frequency (e.g., daily, weekly, monthly, or annually) if they are normally distributed. Herein lies the underlying weak...
How the Binomial Option Pricing Model Works Here's how to do it: Divide the time to expiry into a large number of small time intervals or steps. At each step, assume the stock price can only do one of two things: Move up by a certain factor (u) Move down by a certain factor (d...