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Unformatted text preview: What Do You Get When You Buy a Bond? ~"oloI-<. '" Let's saY~ll buy a $1,000, 5 year bond, paying interest aMJ%, with interest paid annually on December 31, on Jan~, 2008 .. You would receive 5 interest payments of$60 each You would receive a principal payment of$1,000 at the end of 5 years .. Thus, you receive a total of$ [,300. What Would You Pay for It? rnq, '"Suppose yOll could make 8% elsewhere ~ what would entice you to buy a 6% bond? How Do We Make a 6% Bond Return 8%? .. We simply let you earn 8% on the amount you invested and whatever you don't get in cash each year we'll add to the balance. * Interest expense is the balance times the market rate .. Cash is the face amount times the stilted rate '"Amortization is the difference between the two of- d is<.M lo'1t; 9 C, "p.1G I , ha:; >;-\0 \QQ r~OJ$",-=---__ 1M ~ M rL MQY \(Q-\- y~(J;ll"",-----__ Bondpremium M~<' Sf<~ M~\WlbJ c.. S\?( 9>%\ Bond discount MR">SR: - - - _.t:: - - -),--,----;--- Bond issued at par...
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- Fall '08