Corporations and governments issue fixed-income securities as a means of raising money. The owner of such debts lends money and expects to receive the principal when the debt matures. The issuer who wishes to borrow money may issue a fixed amount of interest payment during the lifetime of the debt at prespecified times.

The holder of debt securities, such as U.S. Treasury bills, notes, and bonds, faces the risk of default by the issuer. The federal government and municipal government are thought to face the least default risk since they can easily raise taxes and create more money to repay the outstanding debt dues.

Most bonds pay a fixed amount of interest semi-annually, while some pay quarterly, or annually. These interest payments are also referred to as coupons. They are quoted as a percentage of the face value or par amount of the bond on an annual basis. For example, a five-year $10,000 Treasury bond with a coupon rate of 5 percent pays coupons of $500 in each...