Question about bonds (bond, stocks, payments, buy)
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Let's say Union Pacific 9% bond pays interest semi-annually at December 29 and June 29.
If you buy a bond tomorrow (December 6) will you be eligible for the December 29 payment? I know stocks have an ex-div date, does such thing exist for bonds?
its pro-rated ... there is an adjustment made based on the number of days you owned it . you would have to pay a little more for the bond to compensate the previous owner for the interest they are due.
Your bond pays a 9% coupon. That is not the same as the ROI.
Say you have a bond that expires in Dec, 2021.
It has a 7% coupon, so you get payments of $35 every six months.
If the bond costs you $1,400 to buy it, the value will tend to decilne
until it is worth exactly $1,000 on the day it is redeemed.
The nominal rate of interest that you are getting is 70/1,400 = 5%.
You are not really getting $35 every six months, you are getting $35
less the erosion of the premium ( averaging $400 / 20 payments = $20 )
or $15 every six months.
Such a bond is yielding 3% which is 50% better than a 10-year T-bill.
If 10-year T-bill yields drop to 1.5% then the price of your bonds
would tend to go up quite a bit - possibly $300 per bond.
If yields rise to 3% then you might lose $200 per bond.
Your interest is guaranteed for ten years - providing the company survives.
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