First lesson learned: save a screen shot of the bond detailed quote when buying. I can't find the quote now, probably because that particular bond is no longer in my broker's available inventory.
Thanks KaeJS ... you know a thing or two about bonds.
Originally Posted by KaeJS
So let's see if I have this right.
My "practise" purchase was for $5,000 on June 22, 2011 which cost me $5,127.90 (2.6% premium).
Maturity date is May 25, 2016. Yield is 3.65%
If I hold the bond to maturity, my income will be:
2011 $ 96.00 (approx 192 days)
2012 182.50 ($5,000 @ 3.65%)
2016 72.00 (approx 144 days)
$898.00 total income - taxed annually as interest
On the maturity date I receive back $5,000
- with a result of $127.90 capital loss.
After doing a bit more reading, I need to make a correction.
As noted above, my transaction cost was $5,127.90 but the premium was actually 2.23% which means the bond cost was $5,111.50
The difference of $16.40 is due to the fact that I had to pay the accrued interest from May 25 to June 22 (about $0.50 per day).
To avoid paying this accrued interest, one would try to buy the bond soon as possible after the interest paid date. Most commonly, interest is paid every 6 months, although this may be different with other bond issues.