0
Normally when investors are placing their money in equity investments there is some level of built-in inflation protection. As the cost of producing their merchandise or services goes up, so do the prices that the firms charge. In other words, the increase in the cost of doing business is passed along to the consumers; and therefore the company (or the shareholder thereof) doesn’t suffer.
Historically, there was no such protection for investors in fixed-income assets such as bonds. In fact, inflation risk is one of the larger risks assumed by bondholders. Today there is some hope for investors who want to put their money in bonds but also would like the same protection afforded their equity-investing counterparts. This hope comes in the form of Treasury Inflation Protected Securities, also known as TIPS.
TIPS are bonds issued by the U.S. Treasury that have an inflationary protection component built into them. One of the first things that readers should note about them is that since they are backed by the full faith and credit of the U.S. Government they are generally considered to be among some of the safest investments available.
The interest earned on TIPS doesn’t fluctuate. If you buy a bond with a 2% coupon, it won’t rise with inflation. What does rise with inflation is the par value of the bond. It should be noted that when we talk about inflation in this case we’re talking about inflation as measured by the Consumer Pricing Index, or CPI. What this means is that when the CPI rises, the par value of your bonds goes up. When the bond matures or you sell it in the secondary market, you receive more for it than you otherwise would have.
By offering you inflation protection for fixed-income assets, the U.S. Treasury has secured a bit of a niche market among fixed-income investors concerned about the erosion of their purchasing power.
What else can I help you with?
Do bondholders have voting rights?
No, only stockholders have voting rights. Bondholders do not.
In the event of a firm's dissolution the firm claim on its assets belong to?
bondholders.
When did Corporation of Foreign Bondholders end?
Corporation of Foreign Bondholders ended in 1988.
When was Corporation of Foreign Bondholders created?
Corporation of Foreign Bondholders was created in 1868.
Is Six Flags Great America going out of business?
Yes. Most of Six Flags bondholders also bought CDS protection, and unlike most bankruptcies where bondholders try their best for companies to stay away from Ch11, it is believed that in this case the bondholders actually pushed the firm to file for bankruptcy.
What bond gives purchasers inflation protection?
Floating-rate Bonds
How does the cost of debt differ from the required rate of return for bondholders?
Question 4 How does the cost of debt differ from the required rate of return for bondholders?
When a firm makes annual deposits to repay bondholders at maturity it is using a?
When a firm makes annual deposits to repay bondholders at maturity, it is using a
How does cost of debt differ from the required rate of return for bondholders?
Question 4 How does the cost of debt differ from the required rate of return for bondholders?
Why do stockholders typically have more control over a company than its bondholders?
Simply, because bondholders lack the voting rights that fully owned by stockholders. Thus, bondholders are not Affected by the company's performance and they are only eligible to receive a fixed income based on the bond agreement
Can bondholders vote for the board of directors?
No, bondholders do not have the right to vote for the board of directors. Voting rights in a corporation are typically reserved for shareholders, who own equity in the company. Bondholders are creditors who lend money to the company and are primarily concerned with the repayment of their bonds and interest rather than corporate governance.
Are bondholders considered creditors in a company's financial structure?
Yes, bondholders are considered creditors in a company's financial structure because they have lent money to the company and expect to be repaid with interest.
