Finance Terms

Front 1

What is fixed income?

Back 1

Refers to any type of investment that is not equity, which obligates the borrower/issuer to make payments on a fixed schedule, even if the number of the payments may be variable.

Front 2

What is equity?

Back 2

In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists. In an accounting context, Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock.

Front 3

What are assets?

Back 3

assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset.Simply stated, assets represent ownership of value that can be converted into cash (although cash itself is also considered an asset).

Front 4

What are the some examples of fixed income investments?

Back 4

For example, if you lend money to a borrower and the borrower has to pay interest once a month, you have been issued a fixed-income security. Governments issue government bonds in their own currency and sovereign bonds in foreign currencies. Local governments issue municipal bonds to finance themselves. Debt issued by government-backed agencies is called an agency bond. Companies can issue a corporate bond or get money from a bank through a corporate loan ("preferred stock" can be "fixed income" in some contexts). Securitized bank lending (e.g. credit card debt, car loans or mortgages) can be structured into other types of fixed income products such as ABS – asset-backed securities which can be traded on exchanges just like corporate and government bonds.

Front 5

What is an agency bond?

Back 5

Debt issued by government-backed agencies

Front 6

What does the term "fixed" in "fixed income refer to?

Back 6

It refers only to the schedule of obligatory payments, not the amount.

Front 7

What happens if an issuer misses a payment on a fixed income security?

Back 7

The issuer is in default, and the payees can force the issuer into bankruptcy.

Front 8

What is a bond?

Back 8

A promise to pay interest on borrowed money.

Front 9

In the fixed income industry, who is the "issuer"?

Back 9

Entity that borrows an amount of money and pays the interest.

Front 10

In the fixed income industry, what is the "principal of a bond"?

Back 10

Also known as maturity value, face value, par value – is the amount that the issuer borrows which must be repaid to the lender.

Front 11

In the fixed income industry, what is the "coupon of a bond"?

Back 11

The interest that the issuer must pay.

Front 12

In the fixed income industry, what is meant by "maturity"?

Back 12

The date that the issuer must return the principal.

Front 13

In the fixed income industry, what meant by the term "issue"?

Back 13

Its another term for the bond itself.

Front 14

In the fixed income industry, what is meant by the term "indenture"?

Back 14

States all of the terms of the bond.

Front 15

what kind of investors invest in fixed income securities?

Back 15

Investors in fixed-income securities are typically looking for a constant and secure return on their investment. For example, a retired person might like to receive a regular dependable payment to live on, but not consume principal. This person can buy a bond with their money, and use the coupon payment (the interest) as that regular dependable payment. When the bond matures or is refinanced, the person will have their money returned to them.

Front 16

What are the most common inflation indexed bonds?

Back 16

US Treasury Inflation Protected Securities (TIPS).This type of fixed income is adjusted to a Consumer Price Index (in the US this is the CPI-U for urban consumers), and then a real yield is applied to the adjusted principal.