Afternoon,
To try and better understand bond valuations I thought I would use a real life example. Bonds are generally okay but the trading of bonds midway through their life seems to throw me a bit.
I am interested in buying a bond. I have a list of bonds from this page:
http://www.hl.co.uk/shares/corporate-bonds-gilts/bond-prices/gbp-bonds?sort=life
I am interested in bond with ISIN: GB0004037171 Halifax PLC
now the information shows a coupon of 11% so roughly £11 interest per annum per £100, dependant if the payments are semi annual.
By paying a price of £109 per £100 face value you will only receive the £100 at maturity and your £11 interest give or take some pennies. So although the coupon is attractive at 11% in 1 year and 2 months you won’t be much better off because the price has eaten away at your income through capital depreciation.
The question is: have I understood this correctly and is there anything/definitions I missed in my review?
Thanks for you help