Glossary - Fixed Income
Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. These payments can include interest or dividends from bonds, notes, mortgages, or other forms of debt until the principal is repaid. Fixed-income investments are often used to diversify investment portfolios and can provide investors with steady income streams.
Also known as
- Bonds
- Fixed-income securities
Use cases examples
- Corporate Bond Prospectus: The issuer agrees to pay the bondholders a fixed interest rate of 5% annually until maturity.
- Mortgage Agreement: The borrower is required to make fixed monthly payments of $1,200 over 30 years, covering both principal and interest.
Considerations for investors
- The credit quality of the issuer, as it affects the risk of default and the overall investment return.
- Interest rate risk, as the value of fixed-income investments generally moves inversely to interest rate changes.
Considerations for founders
- Understanding the costs and benefits of issuing fixed-income securities as a means of raising capital.
- Awareness of the impact that fixed-income obligations can have on a company's cash flow and financial stability.
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