16. How to use a Bond Calculator

[@rorschachgarden7778]

Preston, I have recently begun my journey towards financial health. I have been following along on these lessons while taking notes, listening to your podcasts, and getting your book recommendations on audible. I just want to share that you are an incredible resource for people like me who have never been shared these perspectives on money before. Thank you for all your work. I am excited to keep learning, growing, and applying these concepts that are becoming a daily practice. Thank you

[@gauru2303]

To put it in a simpler context, Old bond is valuable because it gives $10 extra every year. If we invest this $10 earnings at a compounded yield of say 4%, it ends up giving roughly profits of $550 at the end of 29 years (SIP of $10 every year @ 4% for 29 years = $ 550), in addition to the $40, which New & Old Bond gives anyway. So at the end of 29 years, Old Bond will technically give ( 1160 + 550) profits, while the New Bond will only give profits of $1160 . Note: 1160 = 29 yrs x $40. The additional $169 paid to buy Old Bond is perfectly justified, because it gives $550 additional earnings over 29 years. which is on average annually $18.9 more money ($ 550 divided by 29) compared to New Bond annually. So technically 1160 is a good buying range for Old bond. Now the question is, is it worth paying $169 more upfront for the Old bond who is 29 years away from maturity? Lets assume, we instead do a fixed term deposit of $169 for 29 years @ 2 % ( term deposits have typically lesser yield than a bond), we end up at $ 301 at the end of 29 years which is lesser than $ 550... so it would be worth paying that $ 1169 to buy the 5 % Old bond vs 4 % New Bond...Of course bonds do come with tax benefits viz a viz the earnings received from that $169 term deposit, which would be taxable...I would still go ahead paying $1169 for a 29 year 5 % coupon bond over a 29 year 4% coupon bond ..

[@imlkr_]

Thanks Gaurang! Now I got a clear idea

[@besch4218]

Can you pls explain?, if I compound $10 @ a yield of 4% it is(Compound interest formula) = $10 * (1 + 4/100)^29 = $31,19

[@mappalguys679]

@@besch4218 basically he has the general idea why old bond goes up but his math is way off,

[@mappalguys679]

@@besch4218 basically you calculate the yield to maturity of old bond whose coupon yield was 5% YTM = 1000(1.05)^29 and then you discount that YTM by dividing it by coupon yield of new bond which is 4%. thus rough estimate of old bond price is = [1000(1.05)^29] / (1.04)^29 = 1319.84 , however the formula preston is using is a bit more elaborate and provides more accurate value

[@mappalguys679]

@@besch4218 when u consider 1yr to maturity then price of old bond is [1000(1.05)^1] / (1.04) = 1009 which is exactly equal to what bond calculator calculates

[@danaashforth8742]

My goal is to watch every single video of yours!

[@verabudennaya5437]

This is awesome! Such a difficult information is given in a very easy to understand way! Thank you Preston, Vera

[@behzadbaradarankazemian2718]

First, I would like to thank you very much, Mr. Pysh, for your precious contribution and then I would like to ask you where can I find the formula to calculate the bond market price if it's possible, please. Because I am going to write a program for me to calculate that.

[@timothycheng1938]

hey man! really love your videos! simple, easy to understand and extremely enriching :)

[@nickb3341]

okay so my question is when calculating inflation its over ho many years the bond was for right? so if inflation rises 6% in 30 years the bond at 5% would have lost money right?

[@pradoprado9993]

I get all the information but for example in real life, to who would I sell it to? Or how can I find someone that would like to buy my bonds

[@martinfalk772]

Got a question here. You say that when the market is coming towards a recession, then thats the time to buy bounds. But wouldnt it be risky buying bonds if you think that the market will crash or go down significantly, like it did in 2008? Or would it be considered pretty safe buying bonds in a company with good S&P rating, even when a big market crash is incoming?

[@KamranB1]

Hi, thanks a lot for your videos. why should we buy bond when the curve is flat? i didn't understand this part

[@michaelhofby]

i dont know but for my country the 10 year federal note average rate is between 0,00 and around 0,60 .. That seems really low doesnt it.. You had over 1 in your video about intrinsic value on a 10 year federal note..

[@OmegaByteYT]

Can somebody tell me why did he write 50 in the first calculator option?

[@kassytan7797]

thanks for sharing. could i have the bond calculator link as showed in the video. thanks. :)

[@as04211]

I don't get the part at 3:15 - 3:40. I need help please.

[@orientexpress1509]

Anne Soontrakorn At the beginning you purchased a bond which pays 5% coupon at the interest rate of 5%. The price of the bond when those two are equal is the par value which in this example is $1000. The coupon amount is $50. In the next year, interest rate falls and a new bond is issued with 4% coupon at the interest rate of 4%. This new bond has a price of $1000. If you consider the stream of cashflows over the next 29 years, the difference in the two bonds is the coupon amount of $10 (50 - 40). Your old bond is worth more and if you were to sell it you need to charge a premium which represents the "present value" of the $10 coupon over the next 29 years. This value is roughly about $169 using 4% interest to discount the cashflows. Therefore the value of your old bond is now $1169 (1000 + 169).

[@jdjprimer19]

Explain how you got $169.

[@bustedsoldier]

The bond calculator tells me that the bond I bought in 2012 at a coupon rate of 5% is worth $1169 in 2013 because the coupon rate has dropped to 4%. Will I actually be able to sell my bond for exactly $1169? Where? How long might it take to sell? Would I expect to incur any additional costs in the transaction?

[@pradoprado9993]

Donald Lane Those are exactly the same questions I have, do you know now?

[@Weejianlele]

@@pradoprado9993 The present value of the bond which is $1169 is not the market price but the 'true' value of the bond. Market price, those prices you see in the exchange will still differ depending on other factors but the gist of it is that if you are holding a bond with a high coupon rate then the one in the market now, your bond will worth more than the face value. Any additional cost incurred that might affect your profit might be things such as broker fee, tax etc...

[@samwheller]

Thank you Sir.

[@AIRpursuit]

so in the example of 2006 - 2009 where the treasury yield went from 5% down to almost 0%. Say you bought 10k bonds in 2006 at 5% and in 2009 the yield is 0.1% and you made a lot of money and trying to sell your bonds. Who will buy them at such high price? can you actually sell high premium bonds fast?

[@KrishK8055]

Andy Liu sometimes yes cause even in times of recession you know that you will receive a certain amount of money by the end of the year whatever the conditions may be and to some people that stability is really important

[@ZxZ239]

Is this a full proof system? When the yield curve is low, put all money in index stocks, when the curve is high or flat, pull out of stuck and put in bond? Can it be that easy?

[@michaelatkinson1949]

does Interest rates only effect the par value when you trying to sell it? Correct me if I'm wrong but you get the same 1000 dollars initially put in when it matures?

[@rtg2656]

if im correct in saying no, depends whats the interest rates are at the time of when you sell, sell when there low and youll make money, sell when there high and you will loose money. when the bond matures it is usually around the intiall face value, but never gaurente youll make exactly 1000 back.

[@michaelatkinson1949]

Rtg thanks my guy

[@orestesdd]

As I don't like bonds, I will skip this lesson for now. I don't think at this point there is of any use to buy bonds since interest rates are in the dog house. Thank you for all your videos. I will come back to this video when interest rates go up again.

[@michaelhofby]

correct but when interest rates come back up you must have the knowledge to act :D

[@anabellopez8610]

Will there be someone willing to buy my bond though if interests are going up? I’m of course willing to sell, but who would want to buy a bond when interests are high?

[@hemalrana]

How to get to this calculator? link???

[@ZxZ239]

www.free-online-calculator-use.com/bond-value-calculator.html#calculator Try this one

[@lostmyredcrayon]

www.buffettsbooks.com/how-to-invest-in-stocks/calculators/

[@aigo9083]

there's no point in investing in bonds because of the yearly inflation, you could probably make a very small profit but its not worth the time especially for long term bonds.

[@maggiewei2142]

This is totally irrelevant but I LOVE your drawing of Warren!

[@davidgutierrez8795]

as May 2019 the curve has inverted.....

[@DavidJohnson-dc8lu]

Feds probably won't lower rates, because they do not want to stock market to over inflate. They will just fiddle around with balance sheet, and increase excessive reserve rates.

[@lostmyredcrayon]

...with higher interest rates that probably means that now is a good time to buy bonds

[@DavidJohnson-dc8lu]

When it comes to Bonds, interest rates are discount rates.

[@Patrick-ud3vu]

Whose watching this in 2050?!

[@romrom1734]

*Your english ! :P