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Investing in bonds

Personal Finance & Money Asked on September 26, 2021

I have two questions:

  1. If I want to invest 10,000€ in specific bond with a par value of 1,000€. When I make order, what do I get (10 bonds or one bond that is worth 10,000€)?

  2. If I buy a 30 year bond that has 5% coupon yield, below par value of 1,000€ (800€) (can I make an order for 10,000€ or it needs to be a multiple of 800, that relates to first question), then I would get a yield of maturity (29 years) of 6.33%. For how much can I sell my bond or bonds? (relates to first question) after 5 years if the price would be 1,400€?

2 Answers

If I want to invest 10,000€ in specific bond with a par value of 1,000€. When I make order, what do I get (10 bonds or one bond that is worth 10,000€)?

You "get" 10 bonds - meaning that you can sell part of this lot (in whole bond increments) if you want to.

If I buy a 30 year bond that has 5% coupon yield, below par value of 1,000€ (800€) (can I make an order for 10,000€ or it needs to be a multiple of 800, that relates to first question),

You would pay 800 for each bond that you buy; they have to be bought in whole bond increments. For 10,000 you could buy 12 bonds for 9,600 and have 400 left over.

then I would get a yield of maturity (29 years) of 6.33%. For how much can I sell my bond or bonds? (relates to first question) after 5 years if the price would be 1,400€?

If the "price" is 1,400 then you can sell your bonds for 1,400 each.

Note that it's very unusual for bonds to increase that much in price. For a bond to go from selling for a discount to selling for that much above par would mean a dramatic collapse in interest rates, since your bond would be much more valuable because it pays a higher interest rate than other bonds that are issued after rates drop.

Correct answer by D Stanley on September 26, 2021

I think I found an answer.

If I would want to invest 10.000€ in bond I could increase face value in thousands. In my case I could buy 13 * 1.000 which is face value for 13 * 800€ which is trading price (10.400€). After 5 years I could sell it for 13 * 1.400€ (future trading price) (18.200€). I would also get coupons of 5% every year (13 * 50€ * 5 years = 3.250€). So the profit would be (18.200€ + 3.250€ coupons - 10.400€ initial investment = 11.050€).

Answered by klemsi123 on September 26, 2021

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