Conclude whether or not U.S. Treasury securities are risk-free. Provide a rationale for your response in which you cite specific examples.
U.S. Treasury Securities are not risk-free; however, they do have a low risk rate. The interest-rate and inflation risk are the main concerns when investing in the U.S. Treasury Securities. Depending if the interest rate increase or decrease will depend on the value of the bond and the amount of interest paid. According to Sifma “ with all fixed-income securities, if interest rates in general rise after a U.S. Treasury security is issued, the value of the issued security will fall, since bonds paying higher rates will come into the market. Similarly, if interest rates fall, the value of the older, higher-paying bond will rise in comparison with new issues.” Investors may be content to hold their bonds until they mature when the inflation rate is low and have moderate shifts in the interest rates. Investors could also try to minimize their market risk by using a technique called “laddering”. Laddering is were “the portfolio is structured so that the securities mature at regular intervals, allowing the investor to make new investments with cash available from the maturing securities.” (Sifma) When investing in bonds know the credit quality of the bonds. Bonds with bad credit (ratings of BB or lower) leave alone they are not worth considering because of their high risk of defaults. (Mattia, L.)
Determine the main role that you believe a dividend should play in the evaluation of a stock. Provide a rationale for your response.
Stockholders depend on the dividends to collect money from their stock investments without them having to sell any of their stocks. Dividends are also able to evaluate the financial health of the company. According to Invesco dividends basics “essentially, dividends are payouts that some companies make to shareholders as a return on their investment. The money paid comes from a company’s earnings, and it is generally seen as a reflection of the company’s past performance as well as its potential for the future. Older, more established companies are more likely to pay dividends than newer firms.” Dividends are taxed their individual tax rate and they normally pay out quarterly at a rate that is pre-announced which gives the shareholders a predictable payout. (Invesco)
Mattia, L. (2014). Think Bonds Are Risk-Free? Think Again. Retrieved on January 26, 2016 from:
Sifma (2010). Types of Bonds. Retrieved on January 26, 2016 from: