RET IPEAM eRe tite

would hold this bond until maturity.
tnour world. interest rates Muctuate
and. bunds, other than CSBs, can be
bought and sold. I you bought this
bond at issue you probably paid full
vale for it: 100 cents on the doilar.

EMR PUL aS Ser eo iE oet cr

term (o maturity and the fess fre-
quent the interest payments, the

“greater the fluctuations in the price
of the bond. We can conclude that if

you bought a 25-year stripped
coupon that pays only at maturily, it

* would have greater price volatility.

than a bond! that paid interest month-

ly and matured in only three years.

The volatility comes intbe form of
changes in the bond's pricy: given a
change in interest rates and ary
inversely with changes j in interest
rales,

* Back to our perfect bond, If mar-
ket interest rates on our 10-year
bond increase to 20% then you can
expect that the value of the bond
will reflect a 20% yield to maturity.

See Hond page 43

As a general rule, the longer the

WRNARS

- THE BOTTOM LINE

# ‘ a WAS recently asked to.
_ explain the importance of.
buying bonds'at 4 ‘discount.
and exactly. what made them
‘discounted i in the. first place.

I promised that I would do my. s
- best to take all of the mystery out of
bonds right here, right now... -
* -For my example, I will use a a 10-
“year government-guaranteed bend
that has‘a 10% ‘coupon rate and costs
‘$1,000. ‘That means $100 a year in's,
‘interest: In a perfect world, interest
‘rates would always be 10% and you

“Veaving ' your RRSP’s to the
‘last minute and recei iving lo

i Limited Pe aerahieg
a Individual Financial Plans

For a free consultation

681- -1300.

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“Thanhy YOU, lo: all
“out? clents: and.
vents hy: for nuke Magy
Mis: gouty year
Kiwe wher wy

Christras:?
JAMES PERKINS -
Vice. President.

ine

NAN C

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