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Individual bonds provide the ability to match the cash flows needed, which is why the term "cash flow matching" is sometimes used to describe this strategy. Because the bonds are dedicated to providing the cash flows, the term "dedicated portfolio" or “asset dedication” is sometimes used to describe the strategy.
This predictability can make zero-coupon bonds attractive to investors who have planned expenses, like paying for college or retirement. Lower initial investment: Zero-coupon bonds are known for ...
Here’s a look at the pros and cons of bond funds in a lower interest rate environment. Pros. Rise in bond prices: When rates fall, the prices of bonds held by the bond fund go up. This is ...
Cash flow matching is a process of hedging in which a company or other entity matches its cash outflows (i.e., financial obligations) with its cash inflows over a given time horizon. [1] It is a subset of immunization strategies in finance. [2] Cash flow matching is of particular importance to defined benefit pension plans. [3]
Consider these pros and cons when deciding whether to invest. Pros. Higher yields. Junk bonds are more volatile than other bonds, but you can expect to receive higher interest rates from them than ...
A cash flow hedge [1] is a hedge of the exposure to the variability of cash flow that: is attributable to a particular risk associated with a recognized asset or liability. Such as all or some future interest payments on variable rate debt or a highly probable forecast transaction and; could affect profit or loss (IAS 39, §86b)
Continue reading → The post Bond Index Funds: The Pros and Cons appeared first on SmartAsset Blog. They can provide investors with a window to diversified, low-fee investing. However, bond index ...
For a cash flow hedge, some of the derivative volatility is placed into a separate component of the entity's equity called the cash flow hedge reserve. Where a hedge relationship is effective (meets the 80%–125% rule), most of the mark-to-market derivative volatility will be offset in the profit and loss account. Hedge accounting entails much ...