A fixed rate bond pays a fixed amount of interest on regular intervals. This is the most common type of bonds in the market.
- Fixed interest income for a stable return
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Mr. Chan invested US$96,000 in a US corporate bond at market price of 96% at the end of 2009. Ther face value of the bond was US$100,000. The bond has the following features:
- Coupon Rate: 6% p.a.
- Maturity Date: September 15, 2015
Scenario 1: Mr. Chan holds the bond until maturity
Mr. Chan will receive an interest payment of US$6,000 (US$100,000 x 6%) every year before the maturity. On September 15, 2015, Mr. Chan will receive the final interest payment of US$6,000 plus US$100,000 for the face value of the bond.
Scenario 2: If Mr. Chan sells the bond with market price = 102%
If Mr. Chan sells the bond in March 2010 and the market price of the bond at that time is 102%, he will receive a pro-rata interest payment of US$3,000 plus US$102,000 (102/100 x US$100,000) for the sale of the bond.
Scenario 3: If Mr. Chan sells the bond with market price = 98%
If Mr. Chan sells the bond in March 2010 and the market price of the bond at that time is 98%, he will receive a pro-rata interest payment of US$3,000 plus US$98,000 (98/100 x US$100,000) for the sale of the bond.
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