Corporate Bonds

plunt

Hi all,

Hopefully someone could help me out here in terms of claculations. Firstly I have never invested in corporate bonds so please feel free to correct any assumptions made

Looking at Pearsons 7% corporate bond. Due for redemption on 27 of Oct (2014)
(http://cbonds.com/emissions/issue/50869)

currently trading at 101.75 . So lets say I use my IWeb ISA and buy £1525.25 worth of these bonds

so total cost= £1525.25 + £5 = 1530.25

For looking at the documentation it looks like the issue price of these were 98.79 (correct me if im wrong). And as interest is paid annually i should get 7% of 98.79, so £103.73. Resulting in redemption face value of £1481.85 + £103.73 = £1585.58. Effectively making £54.33 in profit, equivalent to 3.55% for holding a bond for around 2 months... annualising this rate it would appear as if it the rate was extremely high...


So could any help me understand if I have made the correct assumption here or if I have missed some extremely obvious stuff, as 3.55% for 2 months look a little too good...

I have the same question regarding numerous other corp bonds as looking to buy short terms ones to and hold to redemption while i work out what to invest in. so would appreciate any and all clarification!

kidmugsy

plunt wrote: »

currently trading at 101.75

buying price or selling price?

plunt

kidmugsy wrote: »

buying price or selling price?

http://www.hl.co.uk/shares/shares-search-results/p/pearson-7-2014


buy price. will have a search around for some calc then..

Reaper

Well just off the top of my head, without reading up on this particular bond...

plunt wrote: »

For looking at the documentation it looks like the issue price of these were 98.79 (correct me if im wrong). And as interest is paid annually i should get 7% of 98.79

Highly unlikely. Whatever they were issued at I'd bet the 7% is on the nominal price which is bound to be 100.

Also check if the price is "clean" or "dirty". i.e. whether the price will be adjusted to reflect the fact the previous owner has owned them for most of the payment period and will be compensated for missing out on the dividend.

BillJones

That's presumably the clean price being quoted, is it not, so you'll need to pay the accrued coupon on top.

plunt

BillJones wrote: »

That's presumably the clean price being quoted, is it not, so you'll need to pay the accrued coupon on top.

Wasn't aware bonds would be quoted like that. Assumed it would just have been worked into the price similar, to stocks before the go ex div. Thanks for the insight though