Buying Bonds At A Discount -

By buying at $650, Arthur had unlocked a double-sided gold mine:

The bond still paid a fixed interest rate (coupon) based on the original $1,000. While new buyers were getting 5%, Arthur’s effective yield-to-maturity was nearly double because he had paid so much less for the same interest check. buying bonds at a discount

On the day of , Arthur walked into the same diner. He hadn't just collected high interest for five years; he also cashed in on that $350-per-bond capital gain. He bought the whole room a round of coffee and pie, smiling as he explained that in the world of bonds, sometimes the best treasures are found in the "damaged goods" section. By buying at $650, Arthur had unlocked a

Fast forward five years. The utility company hadn't just survived; it was thriving. As the "fear" evaporated, the bond's price climbed back toward its $1,000 face value. He hadn't just collected high interest for five