Is this a sensible way to compare two 20-year, $1000 Treasury bonds?
Bond 1 has a 4.375% coupon and sells at a slight discount, for $99 per $100.
Bond 2 has a 4.750% coupon and sells at a premium, for $104 per $100.
If I bought 60 of Bond 1 at $990 each, they would cost $59,400.
If I bought 60 of Bond 2 at $1040 each, they would cost $62,400.
60 of Bond 1 would pay 4.375% x $1000 x 20 years x 60 bonds = $52,500 in interest.
60 of Bond 2 would pay 4.750% x $1000 x 20 years x 60 bonds = $57,000 in interest.
60 of Bond 2 would cost $3000 more to buy, but they would pay $4500 more in interest. Is their apparent $1500 advantage real? I understand that Yield to Maturity is what most investors look for, but in the real bonds on which I based this question, the Yield to Maturity was slightly higher for Bond 1, and if Yield to Maturity is a better comparison than the above calculations, what is it taking into account that the above calculations don't?
Bond 1 has a 4.375% coupon and sells at a slight discount, for $99 per $100.
Bond 2 has a 4.750% coupon and sells at a premium, for $104 per $100.
If I bought 60 of Bond 1 at $990 each, they would cost $59,400.
If I bought 60 of Bond 2 at $1040 each, they would cost $62,400.
60 of Bond 1 would pay 4.375% x $1000 x 20 years x 60 bonds = $52,500 in interest.
60 of Bond 2 would pay 4.750% x $1000 x 20 years x 60 bonds = $57,000 in interest.
60 of Bond 2 would cost $3000 more to buy, but they would pay $4500 more in interest. Is their apparent $1500 advantage real? I understand that Yield to Maturity is what most investors look for, but in the real bonds on which I based this question, the Yield to Maturity was slightly higher for Bond 1, and if Yield to Maturity is a better comparison than the above calculations, what is it taking into account that the above calculations don't?
Statistics: Posted by Mevni — Tue Feb 06, 2024 7:54 pm — Replies 2 — Views 260