Question

A "buy and hold" investor purchases a fixed-rate bond at a discount and holds it until it matures. Discuss the sources of return for the investor and mention the one that is least likely to contribute to the investor's return over the investment horizon, assuming all payments are made as scheduled?

Answer 1

A "buy and hold" investor purchases a fixed-rate bond at a discount and holds it until it matures.

There are many sources for the investor to get return from the bond that are:

YTM( Yield to maturity) : A bond's yield is the total return that the buyer will receive between the time the bond is purchased and the date the bond reaches its maturity.

YTD ( Yield to Discount) : An investor get discount while buying a bond when there is a call.

YTC ( Yield to Call) : An investor in a callable bond also wants to estimate the yield to call, or the total return that will be received if the bond purchased is held only until its call date instead of full maturity.

Investments like bonds pay interest. With this type of investment, we can know exactly how much money you’re going to earn on your investment

So according to Bond nature all payment are made by scheduled due to fix rate of return and bond is a Fixed income security.

Convertible Bonds:

Some stocks pay dividends, which give investors a share of what the company makes. You get a regular income from these investments. The amount of the dividend depends on how well the company did that year and what type of stock you own.

As an investor, if you sell an investment like a bond more than you paid for it, you’ll have a capital gain. If you sell it for less than you paid for it, you’ll have a capital loss.