Municipal debt securities issued by a government agency on behalf of a private sector company and intended to build or acquire factories or other heavy equipment and tools. |||Industrial Development Revenue Bonds are issued by a government to assist a private company that might otherwise be unable to obtain financing for its industrial venture or unwilling to undertake the project on its own. The government's goal in providing the debt securities is to improve the economic and employment conditions of its region.
A savings certificate entitling the bearer to receive an interest rate that is indexed to inflation. The indexed certificate of deposit (indexed CD) yields a rate of return that is linked to a stock market index, such as the S&P 500 or the NASDAQ 100. |||Although indexed CDs have their principle guaranteed by the Federal Deposit Insurance Corporation (FDIC) like any other certificate of deposit (CD), the returns based on a market index and are not guaranteed in any way. Many look at these products as either a safer way into the stock market, or a riskier money market product.
A bond in which payment of income on the principal is related to a specific price index, often the Consumer Price Index. This feature provides protection to investors by shielding them from changes in the underlying index. The bond's cash flows are adjusted to ensure that the holder of the bond receives a known real rate of return. In Canada, they also referred to as "real return bonds". |||This type of bond is valuable to investors because the real value of the bond is known from purchase and the risk involved with uncertainty is eliminated. These bonds are also less volatile than nominal bonds and they help investors to maintain their purchasing power. For example, assume that you purchase a regular bond with a nominal return of 4%. If inflation is 3%, you will actually only receive 1% in real terns. On the other hand, if you buy an index-linked bond your cash flow will be adjusted to changes in inflation and you will still receive the full 4% in returns.
A type of structured note whose payment schedule is determined by the behavior of interest rates. |||Similar to the maturity of a collateralized mortgage obligations, the maturity of an index amortizing note extends when interest rates rise and shortens when interest rates decline. Some investors, however, choose IANs as an alternative to CMOs since IANs are exposed to less extension and contraction risk.
A contract between an issuer of bonds and the bondholder stating the time period before repayment, amount of interest paid, if the bond is convertible (and if so, at what price or what ratio), if the bond is callable and the amount of money that is to be repaid. |||The indenture is another name for the bond contract terms, which are also referred to as a deed of trust.
The risk that the income stream paid by a fund will decrease in response to a drop in interest rates. This risk is most prevalent in money market and other short-term income fund strategies, rather than longer term strategies that lock in interest rates. This is an extension of the interest rate risk on an individual bond. |||The following example demonstrates the income risk in a short-term, fixed-income fund. If interest rates are 5%, the money market fund will pay out 4.75%. However, if interest rates suddenly drop to 2%, the fund's payout will have to drop to around 1.75% because it will be reinvesting its funds at the new rate.
A type of debt security in which only the face value of the bond is promised to be paid to the investor, with any coupon payments being paid only if the issuing company has enough earnings to pay for the coupon payment. |||The income bond is a somewhat rare financial instrument which generally serves a corporate purpose similar to that of preferred shares. It may be structured so that unpaid interest payments accumulate and become due upon maturity of the bond issue, but this is usually not the case; as such, it can be a useful tool to help a corporation avoid bankruptcy during times of poor financial health or ongoing reorganization.
Annuities designed to start paying income as soon as the policy is initiated. The income annuity is annuitized immediately, although the underlying income units may be in either fixed or variable investments. As such, the income payments may fluctuate over time.An income annuity is typically purchased with a lump sum payment, often by people who are at or near retirement. Also known as an "immediate annuity". |||Investors seeking income annuities should have clear picture of how much income will be received and for how long. Most annuities pay out until the death of the annuitant and some pay out until the death of spouse. Although the insurance product may be annuitized immediately, variable investments can allow for some principal protection by participating in equity markets. Even if all income units are in fixed investments, there may be a provision allowing for a higher return if a specific benchmark index performs extremely well.
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