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Special Advertising Section Using a Bond's Return for the Management of Future Rate Volatility Everyone has higher interest rate expectations going forward, and most understand that current rates are at their historic lows. With that in mind, it's helpful to reeducate ourselves, as bondholders, to what facets of a fxed income instrument are affected by a changing rate environment as it pertains to permanent components of a bond — coupon rate and maturity — coupled with the dynamic element of a bond — its price. As interest rates rise, prices on existing investments go down as outstanding bonds need to offer a competitive yield to that provided by similar securities with higher interest rates. Obviously, the converse is true; when interest rates fall, bond prices rise. Rate volatility directly affects bonds in one way or another based upon future interest rate expectations and that's based upon investors' expectations of future infation and the resulting erosion in purchasing power if their current fxed income investment continues to be held. The magnitude of the range in which bonds trade — up or down — in response to changing interest rates will depend upon the coupon rate and its maturity. There are many measures used by individuals and money managers alike to help gauge how their respective portfolios might be affected by change. A bond is purchased at a stated interest rate but the longer an investor holds bonds, the greater the risk that other bonds with better terms may become available. Therefore, a bond's validity for inclusion in portfolios may involve an analysis of a bond's yield 56 LOUISVILLE MAGAZINE 2.14 Q: A: Why should I consider guaranteed income annuities? 1. They last a lifetime. 2. They are dependable. 3. You can keep up with infation. 4. They're perfect for rollovers. 5. You choose the start date and frequency of your income payments. 6. They can cover your loved ones, too. 7. You may get more income than you would from alternatives. 8. They help simplify planning. 9. Your money can be passed to your heirs. - Daniel B. Santos, Jr., CLU, MA, Agent, New York Life Insurance Company Lee Dentinger, vice president, corporate bond trader to maturity which simply measures cash outfows (purchase price) to cash infows (coupon stream + principal repayment/sale price). The important thing to remember is that while bonds can provide a relatively stable source of income for investors, it would be wise to periodically review other fxed income investments of varying maturities and credit exposures to see if a rebalancing of bonds is appropriate. In other words, understanding the time value of money, balanced against relative rewards for risk, should be a part of thoughtful discussion, particularly in this interest rate climate. Measure the yield to maturity of the original investment versus an alternative bond — if it presents itself — and its yield to maturity as a catalyst for determining whether a bond swap should be made. Securities offered by J.J.B. Hilliard, W.L. Lyons, LLC. Member NYSE, FINRA & SIPC. Hilliard Lyons does not provide tax or legal advice. Please consult your tax advisor or attorney before making any decision that may affect your tax or legal situation. Q: A: Can individuals qualify for Treasury Management consultation? At Eclipse Bank, individuals who desire to place funds in FDIC insured sweeps and Certifcates of Deposit that exceed the $250,000 FDIC limit beneft from Treasury Management consultation. Large deposits can be broken down into smaller amounts and placed with other banks and Eclipse Bank will manage this process saving clients precious time and resources. - Sheryl Rainey, CTP, senior vice president, Treasury Management, Eclipse Bank Q: A: How does your bank go above and beyond for business customers? We take the time to get to know our customers and their business services. By taking the time to understand each individual business we are able to fnd a solution that fts their needs. We ofer several diferent lending and deposit products that we can put to work for the customer. - Lucy O. Weaver, vice president, Commercial Loan Ofcer, American Founders Bank