List the characteristics of “loanership,” or fixed-income, investments?
Common characteristics of fixed income investments include: • A loan of money is made to a government, corporation, or financial institution in exchange for periodic interest payments. • The interest rate paid can be fixed or variable in response to interest fluctuations in the economy. • The full amount loaned, or principal, is returned at some future date. Should the investment be redeemed or sold prior to the maturity date, the value of the principal will be determined by changes in market interest rates. • Interest rate risk affects the value of fixed-income investments if sold before maturity. Generally, the price and current interest rates available in the economy for similar investments work in an inverse relationship. Thus, if rates rise and the investment must be sold early, the sales prices would be less than the initial loan amount, or principal. 2. List the primary reasons for purchasing fixed-income investments. Fixed-income investments are popular because they: • Diversif
