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Follow Up Interest Rate and Bond Questions

"It's important to know the CD rate because that is the rate you will be receiving when you put money on a cd for a certain period of time. For example, if you put 10,000 on a cd at a six month rate of 5.5% for six months, you would receive 5.5% of 10,000 which is $550. Sometimes you will see the 12 months rate and then you have to just split the earnings in half if you're only putting it on a six month cd.

Knowing the interest rates when dealing with bonds is important because when the interest rates go up, bond prices go down and vice versa. This is because bonds are worth less when interest rates go up since you can now receive more money by just putting your money in savings account. So for example, if the interest rate falls from 3% to 2%, the bond prices will go up b/c now bonds are worth more.

In terms of common stock, the only way interest rates impact stock is that when interest rates go up, the economy usually takes a hit so stock may fall as a response to it. In the same way when interest rates fall, stocks should go up because it signals that people will have more money (b/c they are paying less in interest) and will want to spend more, raising capital for business."
Marina Ricci

Rereading your post I have few questions
(a) if you were just a beginner in investing which one would you choose?
(b) you said that if the interest rate falls the value of Bonds are worth more, does it matter the amount of the investment and the time you let your bond mature or is always the value of the current interest rate that would effect the amount? I hope that made sense.
(c)I somewhat understand but bonds really don't make much sense to me. I got the part where when the interest goes up the price of bonds go down.I'm just not sure how this is considered an investment and money is made off of this. I don't mean to sound like an idiot, this subject is confusing or I just may be thinking too much into it. I'm sure we will touch base later on in detail regarding bonds.
(D)reading and re-reading your post made me think about how the national media was reporting a few weeks ago that the Federal Reserve was lowering the interest rate for banks. As I understand it, there's always a big hoopla surrounding this change, but quite honestly, I still don't know just exactly how these rates relate to those that I pay on my individual loans. Would you happen to know?

I am so sorry for all those questions....but I am a person that likes to think things through. Also I like to make sure i understand this very well. Thank you so much.

Solution Preview

a) For beginner investors, you should choose the least risky security. In this case, the least risky to invest into is a cd because you can't really lose money. However, the amount of money you will make will be significantly less than in either bonds or stocks although the amount of money you lose is also ...

Solution Summary

Follow up interest rates and bond questions are examined.