Buying Bonds At A Discount Official

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.

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. buying bonds at a discount

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. On the day of , Arthur walked into the same diner

The year was 1994, and the sleepy town of Oakhaven was about to learn a lesson in "the art of the discount" thanks to its most eccentric resident, Arthur "Penny" Penhaligon. The bond still paid a fixed interest rate