What are in finance, what are linkers?
Linkers are a type of bond where interest payment is associated with inflation. They are formally known as inflation of indexed bonds. The idea of a bond is that the investor knows what the return will actually be and do not have to worry about the effects of inflation. Theoretically, this lack of risk should mean that the return on offer is slightly lower for Linkers than other bonds. In the fixed date of expiry of the bond, the investor will receive the money he initially paid, plus the interest payment known as the coupon. In most cases, the bond can be purchased and sold in an open market until it expires, so the person who earns it often will not be the original investor.
usually a bond simply pays a fixed interest rate. For example, an investor can buy a five -year bond of 100% in the amount of 100% coupon of $ 100 (USD). This means that the investor gets back $ 120 at a construct period. In some cases, there will be regular payments for the lifetime of the bond. Five -year -old debtThe PIS $ 100 with an annual 5% coupon pays $ 5 per year and returns the original $ 100 at the end of five years.
The danger is that some or all return will be reduced by inflation. In the first example, inflation may mean that average goods that cost $ 100 at the beginning of the five -year period costs $ 110 at the end of the period. This would mean that although the investor has made a profit of $ 20, it is actually better by $ 10.
Linkers solve this by adjusting yields for inflation. The exact method used varies from different linkers and may include the change either the principal used to calculate the final payment, the interest rate used to calculate the payment or both. The general idea is always the same: the investor gets the ensemble to return the guaranteed return as soon as the effects of inflation are taken into account.
In order to get the second example above, each individual payment could be adjusted with inflation. For example at the end of PRThe investor would receive a payment of a 5% coupon rate with a special amount equal to the coupon multiplied by the degree of inflation. If the inflation rate was 3%, the investor would return by 5% plus 0.15%, which is a total of 5.15% or $ 5.15. This is the amount needed to ensure that the investor in the real auditorium returns the promised 5%.