Why bond is called a “Fixed Income Securities”?

Why bond is called a “Fixed Income Securities”?

Bond is called a “Fixed Income Securities”

An investment that provides a return in the form of fixed periodic payments and the eventual return of investment at maturity. Unlike variable income security, where payments changed based on some underlying measure such as short term interest rates, the payments of a fixed –income security are known as income. The most common type of fixed income securities is bonds. A bond is an obligation or loan made by an investor to an issuer (e.g. a government or a company). Fixed-Income security is a debt instrument issued by a government, corporation or other entity to finance and expand their operations. For many investors, particularly retirees, fixed-income investments are a secure, low-risk way to generate a steady flow of income.

An example of fixed income security would be a 5% fixed – rate government bond where a $1,000 investment would result in an annual $50 payment until maturity when the investor would receive the $1,000 back. Generally, these types of assets offer a lower return on investment because they guarantee income. Fixed-income securities provide investors a return in the form of fixed periodic payments and an eventual return of principal at maturity. That means, it is an investment that pays usual income in the form of a coupon payment, interest payment or preferred dividend.

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