Bond Prices

decrement

Hi all

Sorry if this sounds incredibly dumb but could someone please explain how bond prices work. As an example:

Unite Group Plc Bond
Coupon 6.125
Maturity 12 Jun 2020
Price 106.25
GRY 5.073%


Lets say i bought £100 of this bond, what would my yearly coupon be and how much do i actually get back at maturity?

Cheers

Shaolin_Monkey

decrement wrote: »

Hi all

Sorry if this sounds incredibly dumb but could someone please explain how bond prices work. As an example:

Unite Group Plc Bond
Coupon 6.125
Maturity 12 Jun 2020
Price 106.25
GRY 5.073%


Lets say i bought £100 of this bond, what would my yearly coupon be and how much do i actually get back at maturity?

Cheers

It's easier if you think in terms of price per nominal unit of £100 (the 'face value'). That's normally how bond prices are expressed.

If you bought a nominal £100 worth of the bond, the price you would have to pay would be £106.25 (actually it might be a bit more due to bid/offer spread). Note it is trading for more than the face value. Your yearly coupon would be £6.125. The amount you would get back on maturity would be £100. The Gross Redemption Yield (GRY) is lower than the coupon because you have to pay more than the face value to acquire the bond, and so your actual gross yield to maturity taking account of that is 5.073%

CLAPTON

presumably they are £100 nominal bonds


so in principle works like this

if you now spend £100 then you get 100/106.25 = 0.941 worth of a bond

at maturity you get £94.1

you will receive yearly interest of 100 x .941 x 6.125% = £5.76

obviously there is a minimum you can actually buy

decrement

Thanks to you both, that's made it much clearer!