In finance, a fixed rate bond is a type of debt instrument bond with a fixed coupon (interest) rate, as opposed to a floating rate note. A fixed rate bond is a long term debt paper that carries a predetermined interest rate. The interest rate is known as coupon rate and interest is payable at specified dates before bond maturity. Due to its fixed nature, the fixed-rate bond is not susceptible to fluctuations in interest rates, and is therefore viewed as a security that does not possess a significant amount of interest rate risk. That being said, the fixed-rate bond, although a conservative investment, is highly susceptible to a loss in value due to inflation. The fixed-rate bond’s long maturity schedule and predetermined coupon rate offers an investor a solidified return, while leaving the individual exposed to a rise in the consumer price index and overall decrease in their purchasing power.
The coupon rate attached to the fixed-rate bond is payable at specified dates before the bond reaches maturity; the coupon rate and the fixed-payments are delivered periodically to the investor at a percentage rate of the bond’s face value. Due to a fixed-rate bond’s lengthy maturity date, these payments are typically small and as stated before are not tied into interest rates.
Read more about Fixed Rate Bond: Difference Between Fixed and Floating Rate Bonds, Do They Provide Better Returns?, Advantages
Famous quotes containing the words fixed, rate and/or bond:
“It is the fixed that horrifies us, the fixed that assails us with the tremendous force of mindlessness. The fixed is a Mason jar, and we can’t beat it open. ...The fixed is a world without fire--dead flint, dead tinder, and nowhere a spark. It is motion without direction, force without power, the aimless procession of caterpillars round the rim of a vase, and I hate it because at any moment I myself might step to that charmed and glistening thread.”
—Annie Dillard (b. 1945)
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—Mary A. [Elizabeth, Countess Von] Arnim (1866–1941)
“Love cools, friendship falls off, brothers divide: in cities, mutinies; in countries, discord; in palaces, treason; and the bond cracked ‘twixt son and father.”
—William Shakespeare (1564–1616)