• Entertainment
  • Finance
  • Marketing
  • Real Estate
  • Technology
  • Social
National Journal Community Of e-Experts
Finance 0

Understanding Bond And Preferred Stock Yields

By Kurt Osterberg · On April 11, 2018

We have written often about bonds and, also about preferred stocks as conservative income-generating investments. Many investors will want to have some money committed to either or both of these vehicles.

When considering any fixed-income type investment, of course, one of the main considerations is the return expected from it. The net returns on these investments come primarily from the cash flow in the form of interest (on bonds) or dividends (on preferred stocks). But this is not the only component of the return, and sometimes not even the most important one.

This is true because the income on fixed-income investments is, well, fixed – but the price of the instrument is not.

The prices of preferred stocks and bonds fluctuate, primarily in response to changes in the interest-rate environment. An older bond that pays 8% in an environment where competitive newly-issued bonds pay only 5%, is paying $30 per year per thousand-dollar bond more than its peers. That older bond will be valued more highly. It will be quoted at a premium to its face value.

Most often as individual investors we will not be buying bonds or preferred stocks directly from the issuers. We will be buying them through stockbrokers in what is called the secondary market. The bonds and preferreds that we buy will have been issued some time ago, maybe many years ago, when interest rates were much different. The prices that we pay today will seldom be equal to the original face amount.

Because of this, there are actually four different measures of yield that we must understand. Fortunately, it’s not difficult. The four measures are:

Here is a simple example, from a broker’s bond listing:

Corporate Office Properties 5.25% bonds due 2/15/2024. Callable on or after 11/1/2023.

Issue Maturity Coupon Bid/Ask Current Yield Yield to Worst Yield to Maturity Corporate Office Pptys L P Callable 11/23 2/15/2024 104.956         5.25 106.763 4.917 3.897 3.946
Print Friendly, PDF & Email

Share Tweet

Kurt Osterberg

You Might Also Like

  • Finance

    STEPN Sneaker NFTs Sell For $100, Previously Worth $1200

  • Finance

    NFT Prices in Free Fall – 5 NFT Collections to Start Buying Today

  • Finance

    5 NFTs Trending on Twitter Going Cheap to Invest in Now

No Comments

Leave a reply Cancel reply

Top Finance

  • 3 Best Large-Cap Blend Mutual Funds For Enticing Returns 3 Best Large-Cap Blend Mutual Funds For Enticing Returns
  • What is Value Chain Analysis? How to Deliver Value & Gain a Competitive Advantage What is Value Chain Analysis? How to Deliver Value & Gain a Competitive Advantage
  • Hedge Funds In The US Hedge Funds In The US
  • 5 Ridiculously Useful Non-Monetary Reward Examples that Improve Employee Engagement 5 Ridiculously Useful Non-Monetary Reward Examples that Improve Employee Engagement
  • Chart: Amazon’s Dominance In Ecommerce Chart: Amazon’s Dominance In Ecommerce

New Posts

  • STEPN Sneaker NFTs Sell For $100, Previously Worth $1200

    STEPN Sneaker NFTs Sell For $100, Previously Worth $1200

    June 20, 2022
  • NFT Prices in Free Fall – 5 NFT Collections to Start Buying Today

    NFT Prices in Free Fall – 5 NFT Collections to Start Buying Today

    June 20, 2022
  • 5 NFTs Trending on Twitter Going Cheap to Invest in Now

    5 NFTs Trending on Twitter Going Cheap to Invest in Now

    June 20, 2022
  • Bill Gates – ‘NFTs & Crypto Based on Greater Fool Theory’

    Bill Gates – ‘NFTs & Crypto Based on Greater Fool Theory’

    June 20, 2022
  • Actor Seth Green Pays $300,000 to Recover his Stolen BAYC NFT

    Actor Seth Green Pays $300,000 to Recover his Stolen BAYC NFT

    June 20, 2022
  • About
  • Contact Us
  • Privacy & Policy
  • Sitemap
  • Terms of use

Copyright © 2018-2021 NJCEE. All Rights Reserved.