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Interest Rate Risk in a Bond
Course: Investment PlanningLesson 10: Fixed Income Securities Analysis Student Question: I’m not clear why holders of long-term bonds are subject to interest rate risk. If a 20-year bond is purchased at par with a coupon rate of 6.25% ($62.50/year), it seems to me that the investor would still receive $62.50 a year regardless of interest rate changes. What…
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Defining a Stock Spread
Which of the following combinations correctly describes a spread? A combination of a short sale and a purchase of a call for the same stock A combination of buying and selling calls on the same stock with different expiration dates and exercise prices A combination of a put and a call on the same stock…
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National Debt Part 2: Private Sector Perspectives
Good to Know This blog article is the second in a three-part series, including: Federal agency perspectives, Private sector perspectives, and Summary comparison. How does our national debt impact the private sector in the United States? Unsurprisingly, economic experts do not unanimously agree that our rising national debt to gross domestic product ratio is cause…
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Equitable Distributions
Course: Investment PlanningLesson 9: Fixed Income Securities Student Question: This page explains how the basis for inherited property is affected for common-law states and community property states. How is it affected for equitable distribution states like Florida? Instructor Response: Only marital property is subject to equitable distribution in most common law property states. The purpose…
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Refinance Payment Calculation
Evan refinanced his home mortgage to a 30-year fixed mortgage with monthly payments. How much is each payment if he owed $250,000 at the time of the refinance and the interest rate is 7%? $891 $1,211 $1,459 $1,663 CLICK TO REVEAL ANSWER Expand D is the answer. Evan pays his mortgage every month which means…
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CFP Board Research Reveals Millenials’ Top Life Goal
CFP® Board Updates A recent research report by the CFP Board shows “Financial Independence” is the #1 priority of millennials. The survey found 46% of individuals born between 1981 and 1996 cite financial independence or stability is their top life goal. Travel, a healthy and long retirement, career fulfillment, and developing lasting relationships were other…
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Understanding the Relationship Between Coupon Rates and Duration
Course: Investment PlanningLesson 9: Fixed Income Securities Student Question: There is a question regarding duration that I continue to struggle with. Which of the following are true:1-Lower coupon bonds are more sensitive to interest rates than high coupon bonds.2-There is inverse relationship between bond prices and change in interest rates.3-There is a positive relationship between coupon rates…
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Calculating Realized Compound Yield on a Bond
An investor bought a bond at par that matures in 15 years. The bond pays an annual coupon of $130 and the reinvestment rate is 9%. What is the realized compound yield of this bond? 10.21% 11.48% 13.00% 14.10% CLICK TO REVEAL ANSWER Expand A is the answer. One would anticipate a realized compound yield…
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National Debt: Fiscal Tsunami or Ripple?
Good to Know This blog article is the first in a three-part series, including: Federal agency perspectives, Private sector perspectives, and Summary comparison. “The growing [national] debt could create additional challenges for federal fiscal management, which could in turn cause challenges for American households and individuals, too. These potential challenges include: Risks to economic growth…
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