RX Bond Math
Really struggling with understanding bond math conceptually. [E.g., coupon rate = 4; yield = 8, maturity = 5 years. Using no math what is the price of the bond?] How would I go about answering these types of non-formulaic questions? Where do I learn more? Best way to prep for these types of questions?
One common approach is just to ignore discounting/TVM.
We're yielding 4% more than coupon per year, so multiply that by 5 years and you get 20 so estimate of price is 80c.
The actual value is 84c.
Being priced at ~80
Yield = 4% coupon + (price appreciation of 20% / periods till maturity ie 5) = 8%
Price moves inversely with yield. We're not talking about return to the investor who buys at 100 and his investment appreciates to 120.
An investor who buys a bond at 80 with a 4% coupon will receive an 8% return from that very price appreciation you mentioned as the value of the bond converges to face at maturity.
Good thing you posted anon Mr. Hedge Fund
It's 80. Not sure what's causing your asshole to bleed
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