Indexed bonds protect against inflation by linking interest payments and principal repayment to a national price index. This ensures a promised return fee for investors, but the value of the bond can still fluctuate and declining inflation can negatively impact interest payments.
An indexed bond is a reversal vehicle that is structured in the same way as a normal bond with added additional protection to mitigate the damage caused by inflation. El bono logra esto al vincular los pagos de intereses y, se se hasta el vencimiento, la devolution del capital a algún tipo de índice de precios nacional. The measure that the index suffers is also due to the return fee of the inverters that pose the bono. In this way, reversers who buy a bond linked to the index can be sure of the promised return fee and keep the bond until the twenty-first century.
In normal circumstances, a bonus pays regular interest payments to the reversers at a predetermined fee known as the cup. Además, an investor who maintains the bonus until the vencimiento guarantees the return of the original principal paid to buy the bonus. This type of bono does not keep in mind the hecho that the value of the returns obtained from the bono could not be maintained per day with the increase in prices in the economy. To help eliminate the devaluation of inversions that inflation can cause, an inversor can buy a good indexed.
The key feature of a good linked to the index is the shape in which its yields are based on some type of price index, such as the Consumer Price Index (IPC) in the United States, which causes inflation. If the referral index increases, the cup payouts due to the reverser in each regular interval will approximately increase the miscellaneous amount of the initial cup fee. At the end of the bonus plaza, the principal is also adjusted to reflect the effect of inflation.
What guarantees this process is that the reverser who holds a bond linked to the index will obtain the return fee he wishes. For example, an inverter that obtains a cup fee of four per hundred for a good maintained over five years will lose if inflation rises six per hundred in this same time. In a situation like this, the inversionist is essentially losing money in the inversion to keep the bonus until twenty minutes.
There are some other drawbacks to consider when buying an indexed bond. Although the principal is protected if the good maintains up to twenty months, the value of the good can fluctuate as long as it maintains. This may be problematic if the property owner intends to sell the property at some point before the vencimiento. Also, inverters should be aware that the decline in inflation at any moment during the bond market will tend to have a negative impact on the value of the interest payments they will receive.
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