A fixed income security can be defined as a fixed investment that pays regularly in the form of the coupon payment. There are also different other options regarding the payment of the fixed income security such as interest payment or preferred dividend payment. The major advantage of a fixed income security is that it offers fixed income payments at the rate of interest that is previously agreed upon by the holder and the issuer. The most common examples of the fixed income security are the treasury bonds, corporate bonds, certificate of deposit and preferred stock.
Individual holding treasury bonds or the certificate of deposit received a fixed amount of interest related to the par values of the certificates or the bonds after a specific interval of time. On the other hand the holders of the preferred stock of the company will enjoy the dividend that is announced by the company itself after specific intervals of time as long as they hold the shares of that particular company.
To demonstrate, presume an investor possess a Treasury bond with a par value of $1,000 and an annual yield of 6%. This investor is assured an imbursement of $60 each year for the life of the bond. In the same way, an investor who purchases preferred stock in Company ABC possibly will be assured a quarterly dividend payment of $5 per share, which he can consistently receive for as long as he keeps the shares of that particular company.
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