Nowadays, high income
Now, you might be amazed to know that how these bond funds pay an interest rate to you that will yield ten percent or more; when the interest rates are indeed low. So, here is the solution. These bonds yielding high funds to invest in bonds of low quality and they are many a times known as junk. Thus, these mutual funds are frequently known by the term junk bond funds. It is being issued by entities with higher credit ratings and hence here the risk is very low to the defaulters.
On the other hand, you own junk bonds. Here, the owner has a poor financial history. If for instance the corporation faces any difficulty, it is default and they quit form it by giving interests to the bond holders. If the situation changes from bad to worse, then the investors are at a fear that they will be at default and unable to pay the sum to the owners of the bond as it is being agreed upon.
You go the either way, the risk of default always remains and it sets down the value of a junk bond. The yield is ultimately higher, as the price of the junk bond lessens. For instance, you purchase a bond $1000 and five percent coupon interest rate. After some years, the bond moves towards junk status and the rate falls down to $500 in the market. In this case, the investor who purchases this bond for five hundred dollars bets the issuer to continue paying fifty dollars as interest each year. This generates a current yield of 10% to the investor who had purchased the bond for five hundred dollars.
If you are interested to further know about different high income