Hmmm, I don't think that is right. The coupon here is fixed at 4.265%, so you get 4.265% of every $1,000 of face value.Besides the nice explanation that was just given, remember that the coupon is a fixed amount. You get 5.03% of every $1000 of face value, or $50.03, every year. This has no relationship to what you paid.
Ok I wasn't taking into account that I can actually buy more than 250 bonds with 250k. I'm still confused how 250k at 5.03 yield can return 263k that seems like a 5.2 % yield based on 250k at 20 years. Is it just that I will be returned 1k per bond at 263 bonds? The annual coupon is based on the number of bonds or the amount invested?
Now, if you paid $950 for the bond, then that $50.03 is obviously more than 5.03% of $950, so you're effectively getting 5.2% on your investment.
Now if you paid $950 for the bond, you will effectively get 5.03% which is 4.265%/year + the $50 at maturity ($1,000 returned for your $950 spent).
Nobody is getting 5.2% on this 20 year bond. Don't be mad at me for delivering the bad news
Statistics: Posted by typical.investor — Fri Jan 10, 2025 4:33 pm