How much do corporate bonds cost?
How much do corporate bonds cost?
Note: I know next to nothing about corporate bonds; or should I say, much of what I know are in articles like World Book,
and, Wikipedia
http://en.wikipedia.org/wiki/Bond_(finance)
I understand that you buy a bond, and they (generally) yeild interest until they mature; but according to this Wikipedia article (and others from even older sources), there are "stripped" bonds, and it hints that bonds can be sold below face value?
How far below face value? Could a corporation, with, let's say,
$800 000 in assets,
sell 100 000 of $20 bonds;
for, say, $5 each
(or 300 000 bonds of $20, for $2 to $10 each)?
Thanks for any help.
Comments
The price of the bond is a function of interest rates. At the time the bonds are originally issued, they are - generally - priced at face value. After they are issued, they may sell at a premium or discount depending on the yield.
Imagine a bond that was issued many years ago with a 4% interest rate. Most people would not pay full value for that bond as they can get a higher yield elsewhere. In order to get a market yield, the bond trades at a discount.
Obviously you have done your homework and made wise choices. If your are planing to hold your corporates to maturity then all is well. But investing in risk may be what you need . Just because you bought corporates of sound companies does mean you are without risk. If the treasury market craters as some suggest then the appetite for high yielding corporates may slow also. My suggestion is to find a way to hedge your positions be it shorting the corporate market or actually buying gold bullion on a minimal scale. Everybody is looking for yield and to see the 10 yr treasury at sub 3% is crazy. Think about it. When it turns it will probably be ugly. They say deflation but everytime I go to the grocery store I am getting killed with inflation. Honestly you should buy some TIPS or I-bonds for a while and short the LQD ( buy PUTS ) . I know that sounds risky but you should always hedge your positions in this enviroment.