Bond Voyage

Wai Mun Fong and Benedict Koh

Chapter 35 in Managing Your Personal Finance:From Start of Career to Retirement and More, 2020, pp 225-231 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Dear David,In my letter last week, I introduced bonds as a type of fixed income investment. Let’s recall what a coupon bond is. Suppose I buy an annual coupon bond that pays 6% on a par value of $1,000. What cash flow can I expect to get from this investment? First, I expect $60 of coupon interest a year all the way until the bond matures. Second, if I hold the bond till maturity, I will also be paid the par value of $1,000. Neither the coupon rate (6%) nor the par value changes, at least for the bond I’m talking about. Both are fixed when the bond was issued. What will change, however, is the bond price, the price that the secondary market is willing to pay for the bond after it is issued. Bond prices fluctuate daily, just like stock prices, although they are seldom as volatile as stocks. There is nothing mysterious about the way bond prices fluctuate. And if you understand what moves bond prices, you will have a lot of fun guessing which direction bond prices are heading to next, and maybe make some money in the process. Are you ready for this game?…

Keywords: Personal Finance; Investment; Managing Money; Retirement planning; College planning; Borrowing; Buying Bonds; Investing in Real Estate; Estate Planning (search for similar items in EconPapers)
JEL-codes: D14 (search for similar items in EconPapers)
Date: 2020
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