Investment Opportunity Essay
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What is the interest rate or coupon rate?
The stockbroker has already given us the answer to this and it is already very appealing.
What is the bond price?
The stated bond price refers to the cost of purchase or investment in the bond issue. This part of the question should also include elaboration of the yield to maturity period. The referred yield to maturity of a bond is the expected rate of return until the bond matures.
What is the bonds credit quality, its rating and is it insured?
The credit rating of a bond is an initial indicator of the views of the market place considering the position of the issuer’s ability to repay interest and principle on a timely basis.
It is very convenient to be aware of the type of bond you want to invest in, that is, an investment grade bond or high yield If the bond is insured, there is guarantee that the investors will be indemnified for their principal amount and interest should the Yubetchyu state default. Investors are also privileged to purchase insurance on purchases of secondary market bonds.
What is the tax status?
Different types of bonds have different tax status. Interest income from the United States for example is exempted from state and also local taxes. The stock broker should expound on whether the Yubetchyu state is likely to drop state and local income taxes.
What is the tax break worth?
There should be the ample consideration of the tax break worth. This is mostly determined by the state you are in and your income tax bracket. It is therefore advisable to consult from financial professionals before investing in areas carrying out tax implications.
What is the actual yield after my broker has taken his commission and fees?
Calculations of the total yield should be done with relevance to deductions. It is calculated as follows:
Annual Interest ÷ Price = Yield, this however does not reflect fees charged on the brokers commission or the overall transaction. This is rather calculated as a percentage of the sales.
What is the transaction type of the bond?
Before purchasing a bond, it is important to know whether the bond is being offered for the first time or not. New issue bonds are more likely to prove difficult to invest in since the competition is against institutions and professional investors.
Finally how credible is my advisor?
Is he a registered one and if so, how long has he been working in the field of investing in bonds for clients. By asking these questions, you determine what kind of investment advisor you are associating with.