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Securities pricing is the bond market is complex and different from the stock market. While a firm usually has only one kind of common stock, it could have dozens or even hundreds of different outstanding bond obligations. Setting current bond prices is complex. Few individual investors have the required skill, knowledge, information, and experience to make such assessments.
For individual investors it is much more straightforward simply to hold bonds through a bond fund. Once a bond fund establishes its "style" for the type, maturity, and quality of bonds it will hold, it selects and purchases bonds with an eye toward maintaining that style. Maintaining targeted maturity is relatively straightforward. Determining investment quality is less straightforward, but bond mutual funds have analysts on staff and have access to the analytic services of bond ratings houses like Moody's,1 Standard and Poor's,2 and Fitch Ratings.3
Bond funds offer a much higher degree of diversification than most investors could achieve economically through the direct purchase of individual bonds. Bond funds offer a further advantage to individual investors, because a bond fund's professional traders should know how to trade efficiently in...
Sometimes, individual investors pay very high transaction expenses, when buying individual bonds. This is not an issue of bond market inefficiency. Rather, it is a problem of unfair treatment due to the obscurity of the bond pricing process and the willingness of certain traders to take advantage of individual investors.
Bond portfolio management is a relatively specialized investment securities activity. You might expect that certain bond mutual fund managers would be more skilled than others and would produce higher bond returns. Better performance due to investment skill could, of course, justify paying extra fees. However, investment science has not detected a relationship between paying higher fees and obtaining better returns from the bond mutual fund industry.
Works Cited
Vanguard. (2011). Bond Yields. Retrieved December 2, 2012 from https://personal.vanguard.com/us/FundsBondsMarketSummaryTable nvestopedia. (2011). Fixed Income Portfolio. Retrieved December 2, 2012 from http://www.investopedia.com/articles/bonds/07/fiportfolio.asp?viewed=1
Works Cited
Vanguard. (2011). Bond Yields. Retrieved December 2, 2012 from https://personal.vanguard.com/us/FundsBondsMarketSummaryTable nvestopedia. (2011). Fixed Income Portfolio. Retrieved December 2, 2012 from http://www.investopedia.com/articles/bonds/07/fiportfolio.asp?viewed=1
Stock Common vs. Preferred Stock Preferred and common stocks are different in two key aspects. Firstly, stockholders who are preferred have a bigger claim to organizational earnings and assets. This holds true in good times, i.e., when the firm possesses excess money and decides upon distributing it as dividends to company financiers. In such cases, during distributions, preferred stockholders are to be paid prior to common stockholders. But the claim of preferred
Participants are also protected by prohibiting employers from deducting costs from their tax liability of not complying with ERISA6. Both ERISA and the Prudent Investor Rule prohibit certain types of transactions. According to Laura Jordan6, the U.S. labor secretary has the power to grand exemptions from prohibitive rules under ERISA. When such exemption is not granted and fiduciaries engage in prohibitive activities regardless, the result could be liability to repay
It is expected that the bond will mirror the performance of the S & P. 500. ("Transaction History," 2010) November 24, 2010 On November 24th several more new purchases would take place to include: General Motors, Berkshire Hathaway, the Fidelity Immediate Government Fund and the Strategic Advisors Income Fund. Stocks General Motors was selected, because it could help to provide the portfolio with above average growth. The results were that that stock would
Hybrid Securities In basic terms, hybrid securities have features that easily distinguish them from other kinds of securities. In their most basic form, they have characteristics of both equity and debt. For this reason, they cannot be classified as either debt or equity. The three hybrid securities I concern myself with below are convertibles, warrants, and preferred stock. Preferred Stock In the words of Carey and Essayyad (2001), "preferred stock is a security
In fact, Lowenstein's notion of efficiency is that market prices are always perfect reflections of true values because rational investors already erase most egregious discrepancies between price and value with their own strategies. Thus, the paradox is the issue and belief that if markets are efficient, then the most rational strategy is always to buy and hold low-cost broad-based securities; but if the market is indeed inefficient, then it
This will allow for the development of a financial plan. Forecasting allows a company to make good decisions regarding its business model. It allows the management to resolve the dilemma of greater shareholder expectations and demanding customer requirements Palmatier, n.d () . Any company that is striving to achieve operational excellence, and gain competitive advantage will need to perform continuous forecasting in order for it to satisfy its customers and manage