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Hey all, I have a rather elementary question--I hope you understand and ask for your patience with my ignorance. I never really had a fundamental grasp of the concept of bonds, and had a question about an example I saw on Investopedia. The example was as follows: on Day 1, a bond has a par value of $1000 and a 10% coupon with a 1 year maturity, but on Day 2, it plummets and is now at a market price of $800. The yield (whatever that is) is calculated as 100/800 = 12.5%.
Here's what I don't get about this calculation. This is my line of thinking: say you buy the bond on Day 2. At the end of the year, your net worth is -$800 + $1100 = $300. The "profit" you earned consists of a) the $1000 face value you get paid, b) the $100 in coupons, c) minus the $800 you paid to get the bond on Day 2. Continuing my line of thinking, it makes sense to me that the yield should be 300/800 = 37.5%.
So my question is: when calculating yield, why would you not take into account the profit you pocket BESIDES the coupon payments?
There are two yields. Current and YTM. Current is based off of coupons and current price. Your YTM factors in coupons and cap gains.
wow
What does everyone think about Russia-OPEC and the output freeze?
could be interpreted one of two ways: either by stabilizing production and thus allowing prices to float higher, or a PR move that will actually keep production at already unreasonably high levels, leading to stable but lower prices.
until they cut production or demand increases, I don't know that oil can go high (say $60) and stay there.
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