Discussion: Bonds and Other Fixed-Income Instruments

Bonds, also called fixed-income securities, provide investors with successive income over a specific time frame at regular intervals. These securities are issued by a number of companies, municipalities, and government agencies.

There are unique tax liabilities for investor income derived from bonds and other fixed-income instruments, which affect overall holding period returns realized from these investments. In addition, there are varying levels of risk associated with holding these types of securities.

Select two types of bonds and compare the following between the two types selected:

• What are the comparative levels of investment returns for each?
• What are the relevant tax considerations applicable to the investment returns on each?
• What are the comparative risk considerations between the two?