Timeline for Why would I not buy a bond for less than face value?
Current License: CC BY-SA 3.0
21 events
| when toggle format | what | by | license | comment | |
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| S Feb 5, 2016 at 14:12 | history | suggested | Will | CC BY-SA 3.0 |
More assertive
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| Feb 5, 2016 at 11:37 | review | Suggested edits | |||
| S Feb 5, 2016 at 14:12 | |||||
| Jan 28, 2016 at 4:56 | comment | added | Eugene Ryabtsev | @loneboat Indeed, $100 in 2072 is less than $80 today, so you are correct. Funny thing about this bond is floating rate coupon, which seems huge unless "bank bill swap rate", whatever that is, is well below inflation rate. That said, some risk seems to be factored in the bond's price. | |
| Jan 28, 2016 at 4:19 | comment | added | Jason | @loneboat you are not misunderstanding inflation. It would, indeed, be a poor financial choice to look at the total yield and not the annual yield, which would be ridiculously low over that timeframe, and negative when you factor in inflation. | |
| Jan 27, 2016 at 23:11 | comment | added | loneboat | I only see one answer below mentioning inflation. Is $140 in 2072 going to be worth the $100 you pay for it today? That's a 56-year difference. If we work the other way, imagine having paid $100 for a bond in 1960, which is worth $140 today. Seems like you could have gotten FAR MORE value from $100 in 1960 than what $140 would buy today. Am I misunderstanding inflation, and what a BAD thing it would be in this case? I'm not a financial expert AT ALL. I got my inflation numbers from here: data.bls.gov/cgi-bin/… | |
| Jan 27, 2016 at 22:12 | answer | added | Joe | timeline score: 1 | |
| Jan 27, 2016 at 20:48 | comment | added | corsiKa | As a general rule, any time you think "why don't we sell everything and put it in this" just remember, if it was that easy, the people with lots more money and knowledge of the market than you have would already have done so. | |
| Jan 27, 2016 at 16:00 | comment | added | user | You said in the comments to one of the answers that this particular bond that you have in mind matures in 2072. Consider how old you will be then. Consider how many companies were around in 1960 that aren't around now. | |
| Jan 27, 2016 at 15:25 | comment | added | xiaomy | FYI a bond priced at less than face value is a "discount bond". Here is a good read - investopedia.com/terms/d/discountbond.asp | |
| Jan 27, 2016 at 15:06 | comment | added | Pepone | And also if you think that the issuer might redeem them at par as happened recently with some consols (perpetuals) in the uk, | |
| Jan 27, 2016 at 14:50 | comment | added | DSKekaha | That would be a 25% profit. $20 = $80 * .25 | |
| Jan 27, 2016 at 14:22 | comment | added | gnasher729 | Short version: If it sound too good to be true... Of course "what am I missing here" is a completely legitimate question. | |
| Jan 27, 2016 at 13:11 | answer | added | Kaz | timeline score: 6 | |
| Jan 27, 2016 at 12:56 | comment | added | Andrzej Doyle | The existing answers cover the details well. I'd just like to add, that if you ever feel "why would I not sell everything I own and put all that money into buying this thing", then you've probably missed something. Because the current price is roughly the level where people's desire to sell is roughly equivalent to people's desire to buy. If it were a ridiculously good opportunity, then basically everyone would buy everything they could (and push the price up), while no-one would be willing to sell a that price (which would also push the price up). | |
| Jan 27, 2016 at 11:47 | history | tweeted | twitter.com/StackFinance/status/692313043708067840 | ||
| S Jan 27, 2016 at 10:47 | history | suggested | Will |
Useful tag
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| Jan 27, 2016 at 10:47 | review | Suggested edits | |||
| S Jan 27, 2016 at 10:47 | |||||
| Jan 27, 2016 at 10:33 | vote | accept | Aequitas | ||
| Jan 27, 2016 at 10:22 | answer | added | Mike Scott | timeline score: 11 | |
| Jan 27, 2016 at 10:11 | answer | added | Will | timeline score: 37 | |
| Jan 27, 2016 at 10:09 | history | asked | Aequitas | CC BY-SA 3.0 |