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Please help! Finance 101

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Money Talk > Investing, Stocks and Bonds

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Hobear
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Please help! Finance 101  Reply with quote  

Hi everyone! I've become interested in a career in finance, and I'm trying to learn as much as possible. I have a lot of dumb questions and I hope people here can either enlighten me or point me to some solid resources. I've tried reading up on Seeking Alpha and a few other places, but I still finding myself going "huh!?" while reading newspaper articles.

For example...

"A credit downgrade will raise the interest rates demanded by investors in U.S. Treasuries, and cause an instant loss of principal for those hapless investors (like the Chinese) who already own U.S. Treasuries."

How does an increase in interest rate cause a loss of principal for existing investors?

How do bonds work? I keep seeing the US notes going up but I keep hearing negative things as a result of the current debt ceiling crisis. So is going up good or bad? I thought higher interest rates meant better returns on bonds?

Thanks!
Post Wed Jul 27, 2011 11:19 pm
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oldguy
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With bonds, the interest rate and the principal alwasy go in opposite directions.

Eg, if I own a $1000 bond that pays me 4% ($40), and then new bonds are sold that pay 8%, then no one wants to buy my old 4% bond for $1000, they might offer me $600 or $700 to get my bond that pays $40.

The maturity of the bond plays into it too. If my $1000 bond matyured in 2 yrs, you might give me $800 for it, even tho it only paid $40 and new bonds paid $80 - but in two years you get the whole $1000, ie a $200 profit in addition to the interest. And if mu old $1000 bond was a 3- yr bond and you have to wait forever to get $1000, you might only offer me $600 for it.
Post Thu Jul 28, 2011 2:20 am
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Hobear
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quote:
Originally posted by oldguy
With bonds, the interest rate and the principal alwasy go in opposite directions.

Eg, if I own a $1000 bond that pays me 4% ($40), and then new bonds are sold that pay 8%, then no one wants to buy my old 4% bond for $1000, they might offer me $600 or $700 to get my bond that pays $40.

The maturity of the bond plays into it too. If my $1000 bond matyured in 2 yrs, you might give me $800 for it, even tho it only paid $40 and new bonds paid $80 - but in two years you get the whole $1000, ie a $200 profit in addition to the interest. And if mu old $1000 bond was a 3- yr bond and you have to wait forever to get $1000, you might only offer me $600 for it.


Excellent explanation! Thank you!

Does anyone know any good sites for a primer on finance?
Post Thu Jul 28, 2011 4:31 am
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coaster
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Morningstar has an excellent education series; it may be a little hard to find and you have to register for at least a free account to get at it.

www.morningstar.com

Look for "investing classroom" Here's a direct link, though don't know if it's accessible if you're not registered:

http://www.morningstar.com/cover/classroom.html
Post Thu Jul 28, 2011 6:20 am
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Hobear
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coaster, thanks! I'm currently going over the classes over at Investopedia, but I'll check that out next.

paultorres365, I do, and that's how I realized I was in desperate need of some finance 101 lessons! They would talk about basic finance concepts that would go way over my head, so I'm not getting much out of the stories.

Some dumb follow-up questions... how do you go about buying someone's bonds versus buying "new" bonds? Using oldguy's example, how would I buy his $1000 bond with a coupon at 4%? And what if I wanted to get the new bonds with coupons at 8%? How, when and where are new bonds released? And I always see news info like the 10 year bond yield going up/down X basis points, but how do I know which coupon "version" they're talking about?

Thanks guys!
Post Wed Aug 03, 2011 10:16 pm
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RichS
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Look at such websites like Fidelity.com, Vanguard.com, Merrill Lynch etc. This big financial companies always have a wealth of free information on their sites. Very Happy
Post Thu Aug 04, 2011 12:11 am
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Sylviah
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thanks for your sharing
Post Tue Aug 09, 2011 9:45 am
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nodes
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If you are really interested in pursuing a financial career, I will strongly recommend you looking for the CFA (certified Financial analyst) program. You will learn a lot of things regarding finance plus the diploma is highly regarded in the industry. You have also other program like the FRM (Financial risk manager) or the CAIA (Alternative investment.
Post Thu Sep 08, 2011 3:43 pm
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