I'm looking at the following secondary CD on Fidelity and I'm trying to figure out how much interest I will receive when it matures.

Price (Ask)     100.157
Ask Yield to Maturity   1.557%
Current Yield   2.845%
Coupon Frequency Semi-Annually
Maturity Date 05/21/2018

It looks like I'd be paying a little more than the face value (100.157)

I understand that the current yield is what the original rate was set at (2.845%)

I assume that the Yield to Maturity is the current rate based on the extra money I have to spend to buy the CD

Where I am not clear is, it seems like I would be getting the final interest payment when the CD matures. That would be 1.427% minus the extra I pay over the face value. But that really seems to good to be true considering it matures at the end of May. Am I misunderstanding something? It could also be that I am looking at the prices after hours.


That would be 1.427% minus the extra I pay over the face value.

No, you will get the final coupon plus the original face value. The reason you're paying more than the face value (par) for the bond now is because it has a better coupon rate than other bonds of similar risk and duration. You will also have to pay the amount of interest has accrued thus far (e.g. from 11/21/2017 to now, or about 75% of the coupon payment) above the quoted price.

So your profit will be 25% of the coupon payment minus the extra you pay . Assuming the bond pays 2.552% annually (2.548% * 100.157), then your cash flow will be:

At purchase time (assuming 4/5/2018):
      Purchase price -100.157
    Accrued Interest   -0.957  (75% * 2.552/2)

When bond matures (5/21/2018):
      Coupon Payment    1.276
     Bond Par Amount  100.000
NET PROCEEDS            0.162
  • The coupon is payable every 6 months, any specific reason for 75% coupon discounting. – Ironluca Apr 5 '18 at 13:22
  • @Ironluca because 75% of the coupon period (135/180 days) have passed. The current bond holder is entitled to the amount of interest that has accrued when the bond is sold. – D Stanley Apr 5 '18 at 13:50
  • @D Stanley Thanks. I knew I was missing something, which was that I would also have to pay the accrued interest. I was going to try and buy it today but turned out the minimum purchase was 25k worth. – kweinert Apr 5 '18 at 16:04

I think, the price of the bond you are referring is not correct, probably, as you mentioned it could be due to after market closure.

However, if we take the above figures as correct, then according to current yield, the coupon rate of the bond is 2.8494% Refer this.

In this case the bond gives coupon every 6 months, the last coupon payment and the principal payment is due on 21st May 2018. The interest for half year would be 1.4247 per bond. You stand to gain 101.4247-100.157=1.2677.

However, my guess would be (now this is a guess, I do not know about your specific market). The bond is not liquid and the price you are looking at is last traded price; someone might have done a fire sell but I could be wrong.

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