7'4 Buying Bonds

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7.4 Buying Bonds
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Market Price of Bonds

• Bond form of long-term promissory note
• Bond-Holder person who owns a bond can keep
  until due date OR sell to other investors
• Par Value (face value) value of bond (usually
  500, 1000, 5000, or 10,000)
• Issuer organization that sells bonds agrees
  to pay par value on due date

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Market Value selling price (may be different
than par value) quoted as a of par value

• Discount market lt par
• Premium market gt par
• Example
• 97.056 97.056 of par value (discount)
• 102.182 102.182 of par value (premium)

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Example 1

• Edgewood School Bonds are selling at 97.223.
  What is the price of one of the schools 1000
  bonds? Are these bonds selling at a discount or
  a premium?

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Total Investment in Bonds

• Broker buy sell bonds
• Full-service broker provide advice on when to
  buy/sell bonds charge fee/commission (included
  with price of bond for buyer)
• Discount brokers online brokers offer less
  help but charge less (fee on website)
• Total Bond Investment
• (market price commission) ( of bonds)

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Example 2

• Leroy walker bought 10 1000 Regis, Inc bonds at
  104.113 from a broker. The broker charges 4 per
  bond commission. What was Leroys total
  investment?

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Wrap It Up