I would like to understand how bonds work. My broker sells the following bonds CUSIP 8912456V9 COUPON 7.4 MATURITY 2006/09/27 OFFER 100.550 YIELD 0.0010 QUANTIYT 80000
Does that mean that i would get 7.4 % interest. can someone explain these terms adn how bonds work. How do i get best value for money in bonds with the flexibility of disposing the bond when i need cash?
Seede
Hey Junkone,
Checkout the converstation on 3/8/06 titled "New To Bonds" TONS of great information in there!!
Hope that helps, Shhhh
Are you Canadian? First, the above bond is a Toronto Municipal bond. If you are not Canadian, you would have exchange rate risk (the risk that the currency will buy fewer dollars when exchanged back at maturity) along with any other risk that bonds carry.
Indeed it carried a 7.4% coupon, but the bond matures on 9/27, two days from now.
The CUSIP is like the ticker symbol to identify the exact bond. Coupon is the annual interest payment you get while waiting for the bond to mature. Maturity is the date you get back the bond's face value. The offer is the price you would pay at the time the bond is quoted to you. This price can go up or down from the time the bond is issued depending how the interest rate moves, and the time to maturity. Yield is what you make on your money, taking into account the current price, interest payments, due date, and maturity. Quantity is how many bonds the broker had access to.
By staying short, you will reduce the interest rate risk. For example, a ten year bond will rise or fall in value by nearly 8% for each full percent rates go up or down. This is a very brief remark about how the price moves. JOE
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