Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Fixed Income Security

What it is:

A fixed income security is an investment that pays regular income in the form of a coupon payment, interest payment or preferred dividend.

How it works (Example):

Fixed income securities provide periodic income payments at an interest or dividend rate known in advance by the holder. The most common fixed-income securities include Treasury bonds, corporate bonds, certificates of deposit (CDs) and preferred stock.

Holders of Treasury bonds and CDs receive a fixed interest rate based on a par value over a specific period of time. Holders of preferred stock are entitled to a periodic fixed dividend specified by the issuing company for as long as they own the shares.

To illustrate, suppose an investor owns a Treasury bond with a par value of $1,000 and an annual yield of 6%. This investor is guaranteed a payment of $60 each year for the life of the bond. Similarly, an investor who holds preferred stock in Company XYZ might be promised a quarterly dividend payment of $5 per share, which he can dependably receive for as long as he holds the shares.

Why it Matters:

Fixed income securities are an excellent choice for risk-averse investors seeking a stable source of income payments at predictable intervals. Fixed income investors and prospective investors should understand that the relatively low risk of fixed income securities generally translates into relatively lower returns.

Related Terms View All
  • Obligation Bond
    The face value of an obligation bond is usually larger than the value of the property...
  • Nakahara Prize
    The board of directors of the Japanese Economic Association determines who wins the...
  • Self-Insure
    Let's say John Doe owns a restaurant. He buys property and casualty insurance that only...
  • Vittorio Mincato
    Born in 1936, Mincato is an accountant on paper. His first any only employer was Italian...
  • Take a Flier
    John Doe starts his own business. He looks for angel investors to give him seed capital....