Fixed Income – What is it, Types, Advantage, Disadvantages, and Example

What is the fixed income?

Fixed income is the set of financial debt assets issued by states, agencies, public and private entities offering the borrower a fixed income as a return for the investment made.

It is made up of various securities such as bonds, bonds, promissory notes, Treasury bills, its profitability being lower than that obtained in equity placements since it is considered a safer investment.

Types of fixed income

According to its issuance, fixed income is classified into:

Advantages and disadvantages of fixed income

Advantage

The advantages of fixed income are:

Disadvantages

The disadvantages of fixed income are:

Fixed income example

Suppose that the government issues 20-year public debt securities with an annual interest of 5% in order to carry out public works, generating genuine employment in the construction sector.

An investor decides to place the US $ 50,000 in these bonds, expecting to receive the corresponding interest at the end of each year and at maturity the total amount of the capital contributed. So you will receive:

• Year 0: u $ s 50,000 (initial investment).
• Years 1 to 19: u $ s 2,500 per year (interest of 5%).
• Year 20: final u $ s 52,500 (u $ s 50,000 principal + u $ s 2,500 interest).