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The Bond Market
Just how are fixed interest investments priced?
The question most asked when a prospective investor buys fixed interest securities such as Fletcher Challenge Capital Notes, Brierley Capital Notes, Government Stock, etc is:
"What is meant by coupon and yields?"
This is then followed by: "What do you mean I have to pay $12,000 for $10,000 of Government Stock?"
A lengthy discussion typically ensues, leaving the investor no clearer about fixed interest and the feeling he or she has been conned. We assure you, this is not the case.
The following example provides an explanation of how bonds and fixed interest stocks are priced.
Typically, when a purchase of a fixed interest security such as Government Stock is made, you will receive a contract note containing the following information:
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