What amount will I get back if I hold a bond to maturity?
If I hold a bond to maturity, then on day of maturity, will I get back:
The price of the bond at maturity? or,
The price I paid when I bought the bond? or,
The par value of the bond?
My guess is #1 , but the confusion is: At maturity, the bond will stop trading, so price of the bond at maturity is the last traded price/last Ask Price?
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At maturity, the last traded price should be the par value plus any amount of interest yet to be paid, typically none or one final payment. So the idea of investing in a bond is to collect the interest and then get back your principal upon expiration. During the life of the bond, the market/trading value of the bond is determined by current interest rates and amount of time until expiration.
www.investopedia.com/exam-guide/cfa-level-1/fixed-income-investments/bond-vaue-price.asp
If a bond is not defaulted by the creditor, the creditor will pay any interest outstanding and par at maturity.
Par is the contracted amount of the debt, so regardless of what the price of the bond is in the market, the bond will pay the amount stipulated in the bond contract; therefore assuming no default and no outstanding interest, a price below par will provide an un-risk adjusted, undiscounted gain at maturity while a price above par will provide an un-risk adjusted, undiscounted loss at maturity.
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