R02 Bond pricing query

frances-ford

Hi,

Just studying for R02, and I'm a bit confused about bonds!

The book says that if someone purchases a bond at a price of £98.53125 (assume this is the price for £100 nominal value?) and its price is now £136.69, the investor has made a capital loss of £36.69 for each £100.

I can't get my head around how they have made a loss if the price has increased? I thought they would have gained £36.69 + any interest as this wouldn't be included in the price?

Any help much appreciated!

Frances

DanAtkinsonUK

At maturity you just get the £100 nominal. I think they are talking about buying more of the bond at the second date which would give a loss (depending on the coupon).

benjaminfabi

I'd be interested to see a screen shot of the actual example because the way it's described in your post definitely sounds odd.