Originally Posted by
g13544055
Hi guys,
Just a quick question as I am studying this at the minute. Say I purchase a bond for a nominal value of £50,000, on a maturity of 6yrs, with 5% annual interest (non compound just to make it easy). The following year I want to sell this bond on, but interest rates are now 8% say, with the same maturity date. Obviously someone would rather buy a bond at £50,000 with the higher interest rate, so I would have to sell mine for less to attract customers, as they will want the same yield.
Taking the flat yield to be = (coupon rate/market price) x 100%
Coupon rate on my bond = £2500 per annum.
So, 8%= (2500/market price) x 100%
therefore market price = 31250
So after year one i have made 2500 in interest, and can sell my bond at the dearest of 31250, so i'm actually losing money because i spent 50,000, and only getting back 31250+2500=36750. Is that right? lol.
Would you advise me to hold on to my bond, and wait until it matures, or at least until interest rates fall?
Basically I want to know if i have done this right, and also, do you not get your investment back from a bond untill the redemption date? or is it paid back annually?
Thanks, B.:D