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:
“... social evils are dangerously contagious. The fixed policy of persecution and injustice against a class of women who are weak and defenseless will be necessarily hurtful to the cause of all women.”
—Fannie Barrier Williams (1855–1944)
“I don’t know but a book in a man’s brain is better off than a book bound in calf—at any rate it is safer from criticism. And taking a book off the brain, is akin to the ticklish & dangerous business of taking an old painting off a panel—you have to scrape off the whole brain in order to get at it with due safety—& even then, the painting may not be worth the trouble.”
—Herman Melville (1819–1891)
“The principle of subordination is the great bond of union and harmony through the universe.”
—Catherine E. Beecher (1800–1878)