Index linked Stocks

It is of course possible to get stocks that are linked to an index of some sort.

As you know now with bonds the main risk is that interest rates will move and affect the price.

As inflation goes up, people will demand more yield or return from the bond.

Therefore the government has often issued index linked bonds which means that those who hold the bonds as investors will get compensated automatically for any changes in inflation that occur due to this link that has been put in place.

In fact the compensation that occurs for inflation gets applied two two things: the coupon and the capital repayment itself upon maturity of the bond.

This is very important to understand and in making the bond an attractive product to those that purchase it, so is well worth getting to grips with.

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