# General question about bonds. How /where does one buy bonds at their coupon value?



## alexei (Jul 2, 2012)

I've recently applied for an account with RBC Direct Investing and have a naive question  When searching for bonds I've noticed that all of them are not sold at their coupon values. Is this the case because the bonds are re-sold by a second party or because of the RBC's markup? For instance, below is an example of a BC bond that is sold at a 12.5% markup. Also there are two yields in the table below. What is the difference between them? Is the yield here calculated assuming all interest paid is reinvested or it's a simple yield (annual interest/par value)? Why is the annual and semi-annual yields are almost the same?

BC 5.15% 18DEC15
PAR Value:	10,000 
Security Type:	Provincial Bonds 
Issuer:	BC 
Maturity Date:	18 Dec 2015 
Coupon:	5.15% 
Approximate Annual Yield:	1.413% 
Approximate Semi-Annual Yield:	1.408% 
Rating*:	AAH/AAA 
Amount of Inventory:	382,000 
Special Term:	N/A 
Approximate Price/100 CAD:	112.5090CAD


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## HaroldCrump (Jun 10, 2009)

alexei said:


> Is this the case because the bonds are re-sold by a second party or because of the RBC's markup?


Two main reasons:
- Bonds trade at par, premium, or discount to face value.
Par is when the coupon is your yield i.e. the "price/100" in your case will be $100.
Premium is when it trades above $100 (as in this case).
Discount is below $100.
Premiums and discounts arise for several reasons, including the prevailing yields in the market for similar securities, the credit worthiness of the issuer, the rating of the bond, market sentiment, etc.

- The other reason is the spread applied by your brokerage.
It varies from broker to broker, but is not significant compared to the premium (in this case).



> Also there are two yields in the table below. What is the difference between them?


It's annual yield and semi-annual yield.
To convert from semi-annual yield to annual, square the semi-annual yield and then divide by 4.
That gives you the bps to add to the semi annual yield to get the annual yield equivalent.
Just focus on the annual yield for easy comparison with other securities like GICs, dividend stock, etc.



> Is the yield here calculated assuming all interest paid is reinvested or it's a simple yield (annual interest/par value)?


It assumed re-investment at same rate.
This is known as re-investment risk.

Further reading:
http://www.investopedia.com/university/bonds/#axzz1zoL0AZ8p


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