Fixed-Dollar Obligations

Fixed-dollar obligations

Conventional bonds for which the coupon rate is set at a fixed percentage of the par value.

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Fixed-Dollar Obligations

Securities in which the returns do not vary based on performance. A common example is a bond with a fixed interest rate: the return does not change based on the bond issuer's performance. Other examples include preferred stock and Treasury bills. These investments typically provide a steady return, but have relatively high exposure to inflation risk. To reduce this exposure, some fixed-dollar obligations are linked to an index in which the principal changes, but not the rate of return. For example, an index-linked, fixed-dollar obligation will pay a constant interest rate, say 4%, but the amount in the principal changes according to inflation such that the dollar amount of the return is higher. See also: Coupon, Treasury Inflation Protected Securities, Floating-rate note.