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# Understanding bond price and interest

Discussion in 'Fixed Income' started by pietruzzo, Oct 14, 2020.

1. ### pietruzzo

Hello everyone,

I have been going mental for the past few days trying to learn the basics of bond trading, and despite having understood the coupon / interests formula, I am getting confused with the bond bid/ask price.

For instance lets take following bond as example:

Face value: \$1000
Coupon: 10
Maturity: 5 years (it is actually a bit less but lets just assume it is 5 years to simplify things)

If I were to buy the bond right now and hold it for exactly 5 years, the following formula tells me this is what I will be paying for the bond today: 1000 / (1.10)x^y5 = \$620.92.

This means that by the end of the 5 years holding term, the issuer of the bond will have repaid a total of \$1000, leaving me with \$309 of profit. Am I on the right track?

Now, if my understanding is correct, what does the Bid/Ask exactly indicate and how does it affect the cost of the bond and the total profit?

I do apologise if these questions may seem too lame but I have always been terrible with mathematics and logic.

Thanks

2. ### pietruzzo

No love for bonds anyone?