Trading Bonds

Trading Bonds

Par Value - This is the amount the bond holder would receive at maturity
date. Bonds typically has a par value of $1000.

Coupon - This is the interest paid to the holder normally attached with the bond. For example a 7% coupon rate on a bond with a face value of $1000 would give him $70 a year. This interest is paid out depending on the terms written on the bond it can either be every 6 months or quarterly. Maturity Date - This is the date the bond expires and the face value of the
bond is returned to the bond holder.

Price - The amount you acquired the bond either directly at par value or from somebody who sold it at a price above or below its par value. When you buy a bond at $800, you would still receive its par value at maturity date the only difference is, your yield is higher.

Yield - The total return of the bond until maturity date. Yield is different from the
coupon rate, for instance you bought a $10,000 bond with a coupon rate of 10% its yield is also 10% since you're getting $1,000 yearly from a $10,000 investment. When the price of the bond drops to $9,000, its coupon rate is still 10% derived from its face value of $10,000 but yield is higher, since you're still getting a $1,000 interest from a $9,000 purchase price, your yield is 11% ($1000/$10,000).

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