Buying Bonds At A Discount -

The bond still paid a fixed interest rate (coupon) based on the original $1,000. While new buyers were getting 5%, Arthur’s effective yield-to-maturity was nearly double because he had paid so much less for the same interest check.

Bonds have a legal obligation to pay back the full $1,000 at the end of their term. Arthur was essentially buying a future $1,000 for a $350 discount. buying bonds at a discount

Fast forward five years. The utility company hadn't just survived; it was thriving. As the "fear" evaporated, the bond's price climbed back toward its $1,000 face value. The bond still paid a fixed interest rate

AI responses may include mistakes. For financial advice, consult a professional. Learn more Arthur was essentially buying a future $1,000 for

On the day of , Arthur walked into the same diner. He hadn't just collected high interest for five years; he also cashed in on that $350-per-bond capital gain. He bought the whole room a round of coffee and pie, smiling as he explained that in the world of bonds, sometimes the best treasures are found in the "damaged goods" section.