Corporate bonds help

Professor_Lizard

Hello all,
Hoping for some help interpreting corporate bond info.
I appreciate there is some concern over the bond bubble at the moment, but I would like to consider any means by which I can ge a decent interest rate and beat inflation.
These are the things I know;
I understand bonds can be traded.
I understand that a bonds face value may increase or decrease.
I understand if I buy above par I will still receive the coupon rate.

My question is this;
If I buy above par, do i get the inflated price back at maturity? a fictional example;
A bond I fancy (issued years ago) is trading and has a coupon of 5% and two years remaining. It's a popular bond and its trading at 110p. I would have to pay £1100 to get £50 a year for the next two years?
Now. Have I chosen poorly and would only get £1000 back at maturity or would I get my £1100 back?
I have a migraine. Any help would be very much appreciated,
PL

Linton

You would only get back the face value.

Masomnia

Professor_Lizard wrote: »

Hello all,
Hoping for some help interpreting corporate bond info.
I appreciate there is some concern over the bond bubble at the moment, but I would like to consider any means by which I can ge a decent interest rate and beat inflation.
These are the things I know;
I understand bonds can be traded.
I understand that a bonds face value may increase or decrease.
I understand if I buy above par I will still receive the coupon rate.

My question is this;
If I buy above par, do i get the inflated price back at maturity? a fictional example;
A bond I fancy (issued years ago) is trading and has a coupon of 5% and two years remaining. It's a popular bond and its trading at 110p. I would have to pay £1100 to get £50 a year for the next two years?
Now. Have I chosen poorly and would only get £1000 back at maturity or would I get my £1100 back?
I have a migraine. Any help would be very much appreciated,
PL

For a standard corporate bond:

The face value/par value/nominal value, whatever you want to call it doesn't change, it's the market price that changes. And it's the par value you get back at maturity.

So I'm sorry to be the bearer of bad news, but you will get back £1000. Ie you may pay 110p for the bond, but if the par value is 100p you get 100p back.

In your example, at maturity you make a capital loss of £100 (£1100 paid for the bond, and you get £1000 back) and gain two years worth of interest, so you make £100 in interest gross. So you break even.

So the 'yield to maturity' you get is near enough 0%. Assuming no tax.

Professor_Lizard

As suspected. Thank you guys. Have not bought into a bond but am looking for a shorter term investment so may still go down this road, outside of an ISA wrapper,

Reaper

Remember corporate bonds pay out their income gross, but you will have to declare this and pay tax on it unless you place it inside an ISA or pension, in which case the income is tax free.

BLB53

To learn more on bonds and fixed interest, I can recommend Mark Tabers site:

http://www.fixedincomeinvestments.org.uk/