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42 votes

What does "not touching the principal" actually mean?

"Not touching the principal" simply means that you leave the principal amount of the trust fund alone and only draw off the interest or dividends it accrues. So, let's say you inherit $10 ...
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  • 5,262
29 votes
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Did Greece really issue bonds to investors yielding 42% interest?

Your understanding is indeed wrong. Bond yield is the effective interest rate relative to the current market price of the bond, and it is anything but fixed. There was never anyone actually paying or ...
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26 votes

What does "not touching the principal" actually mean?

There are four problems with your logic. First, interest rates are low now but they haven't always been. And you get more interest with "locked in" savings like CDs. So what you see offered ...
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24 votes
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If Turkey doesn't go bankrupt, is there any chance they won't pay bonds profits?

You're contemplating paying 30,000 lira ($5000 US or 4400 EUR) today for bonds with a face value of 37,500 lira. If Turkey doesn't go bankrupt, in one year the bonds will pay out 37,500 lira. If you ...
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  • 6,209
17 votes
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Why would I buy a bond with a negative yield?

Possible reasons I can think of: You are a central bank. Your goal is to inject liquidity into the system by buying bonds, and you don't care about low or even negative returns. Your bond buying ...
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15 votes

What does "not touching the principal" actually mean?

You are quite wrong in your stock market example. Let's say I have $1 million invested, and since I am not an active investor, the money is in mutual funds. So my principal is $1 million. In an ...
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  • 11.1k
11 votes
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Thorough Description of Yield to Maturity?

What is a bond price? A bond is an asset, and like any tradeable asset it has a price. If I hold $10K face value of a certain GM bond, then I would be willing to sell it at some price, which may be ...
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  • 14.9k
10 votes

What does "not touching the principal" actually mean?

In such a situation, someone’s talking about not reducing the starting total value. If an investment appreciates, then you sell some of it, you may still maintain at least the same base value you ...
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9 votes
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Why is there a sell off of US bonds if interest rates in the US are currently rising?

Bond prices and interest rates have an inverse relationship. When rates increase, bond price declines, and vice versa. Suppose you bought a bond with a rate of 4%. At a later date, interest rates ...
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  • 73.7k
7 votes

Why would I buy a bond with a negative yield?

It would be preferable to purchase a bond with a negative yield if the negative yield was the smallest compared to similar financial securities. The purchase or sale of a security is rarely a ...
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  • 701
6 votes
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How do I calculate my annual percentage yield?

Applying some simple Math: $725,000/$440,000 = 1.6477272727272.... So, your cumulative return is 64.8% if I round to 3 digits. Now, if I take the 5th root of 1.648, I get approximately 1....
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  • 10.1k
6 votes

What does "not touching the principal" actually mean?

Another example is rise in stock market price - but that does not make sense either. If one has 10 shares of company XXX, even if XXX stock price doubles every year one would still have to sell shares ...
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5 votes
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Confirm Dividend Yield

Is my math correct? The Math is correct, however Dividends don't work this way. The Yield is Post Facto. i.e. Given the dividend that is declared every quarter, once calculates the yield. The ...
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  • 56.6k
5 votes
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Need help with the concept of yield in a fund

You have the formula for dividend yield of a mutual fund correct. It is the annual dividend payment divided by the value of the mutual fund. This metric is just a snapshot of what the mutual fund is ...
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5 votes

Why don't investors in negative-yielding government bonds put money in positive-yielding government bonds instead?

For the same reason that some investors buy long-term bonds when the yield curve is inverted but positive: They expect that short-term rates will decline enough to make locking in the current long-...
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  • 28.6k
4 votes

Are a bond's yield and interest rate the same thing?

Let's say you paid $10,000 for a ten-year bond with a coupon rate of 5%. That's a promise from the bond issuer that they'll pay you $500 per year for ten years, and at the end of those ten years they'...
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  • 5,323
4 votes
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What does "compression of spreads on high-yield debt" mean?

Investopedia does a perfectly fine job of explaining it: The percentage difference in current yields of various classes of high-yield bonds (often junk bonds) compared against investment-grade ...
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  • 5,997
4 votes

Why would I buy a bond with a negative yield?

Perhaps something else comes with the bond so it is a convertible security. Buffett's Negative-Interest Issues Sell Well from 2002 would be an example from more than a decade ago: Warren E. Buffett'...
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  • 10.1k
4 votes

Does a mutual fund's return include fees?

Generally the sales load are amortized over a period of time. The upfront sales load is taken out of the investment value. Hence quite a few Mutual funds the real return is not fully known unless one ...
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  • 56.6k
4 votes
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How to calculate new price for bond if yield increases

I am currently trying out some variations (moving terms around ...) of the formula for the present value of money The relationship between yield and price is much simpler than that. If you pay £1015 ...
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  • 3,051
4 votes

How to calculate new price for bond if yield increases

The duration of a bond tells you the sensitivity of its price to its yield. There are various ways of defining it (see here for example), and it would have been preferable to have a more precise ...
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  • 161
4 votes
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Why bonds with lower coupon rates have higher interest rate risk?

The key concept here is called Yield To Maturity (YTM). This is the yield that bond has when held until its redemption date. It is calculated from the coupon and the price the bond trades at today. (...
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  • 3,997
4 votes
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When to buy and sell bonds

Why does selling a bond drive up the yield? The bond will pay back a fixed amount when it comes due. The yield is a comparison of what you pay for the bond and what will be repaid when it matures (...
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4 votes

What are the downsides to high-interest savings accounts?

The main reason people go with lower interest accounts is for convenience of having the money in the same institution with other accounts (like checking, auto loans, credit cards, etc.) with their ...
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4 votes
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What determines the interest rates of government bonds?

I can imagine there are people selling on the secondary market at given interest rates, therefore the rate changes on the basis of those trades. No - the rate for a given bond is fixed, and is set by ...
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  • 114k
4 votes

Why are long term bonds subjected to a higher volatility, as well as higher yield than short term bonds?

The longer the time horizon, the greater the risk and the higher the volatility. There are many more dire economic and events that can occur in 10 years rather than 2 years. Specifically Interest ...
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3 votes

Does a mutual fund's return include fees?

Fees are one of the main reasons few funds can consistently beat the market. That said fund return is an advertising gimmick...almost none of them state return rate after fees.
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  • 128
3 votes

Please help me understand reasons for differences in Government Bond Yields

These are yields for the government bonds. EuroZone interest rates are much lower (10 times lower, in fact) than the UK (GBP zone) interest rates. The rates are set by the central banks.
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  • 129k
3 votes

Is there a reason to buy a 0% yield bond?

0% bonds are desirable for some individuals. It depends on your situation. 0% bonds are usually sold well below par value (eg a 100$ face value bond for 2020 might sell for 90$ today) Hence, your ...
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