| T.R | Title | User | Personal
Name | Date | Lines |
|---|
| 450.1 | | VMSDEV::HAMMOND | Charlie Hammond -- ZKO3-04/S23 -- dtn 381-2684 | Wed Apr 14 1993 16:43 | 48 |
| >The bonds are now worth about $5000 - $6000 and in about 10 years they
>mature to $24000. They have about a 9% yield or interest or whatever you call
>it.
If the numbers above are correct then the actual return you'll get
over the next 10 years is something in th 15-16% range. IRAs pay
anywhere from 2-3% in a money market account to whatever you can
get from a well managed investment. However, if these bonds are
sound -- i.e. not likely to default -- then you have a "sure thing"
in hand that is *WELL* above the averate IRA expectation. Even
considering tax consequences, you would need to show me a very
good reason to sell them for the purpose of funing an IRA.
(Don't forget -- you can put only $2000 per year into an IRA.)
>Also how do you calculate the interest on an investment. For example
>if I buy something(bonds or whatever) for $2000 and it has a 9% interest
>rate, how do I calculate what it would be worth in a year or two or ten?
First realize that the the INTEREST RATE stated on the bond
don't mean very much in terms of your ACTUAL RETURN.
To calculate your return solve the following.
FUTURE VALUE = PRESENT VALUE * ((1+i)^n)
FUTURE VALUE can be the FACE VALUE that you'll receive in ~10 years.
PRESENT VALUE is market value of the bond today.
i is the interest, expressed as a decimal. (i.e. 9% = .09)
n i the number of years you hold the investment -- ~10 in this case.
If you solve this for a $24,000 future value, a $5-6000 current value,
and 10 years, i comes out to ~15-16%.
If your original purchase price was MORE than $5-6000, then using a
greater present value and a period longer than 10yers would come out
to a LOWER return -- maybe nearer to the nominal 9%. If this were
the case it would say that you've lost money on these so far. But
if your number are right, I think you should ignore that loss and
hold onto what has now become a very nice investment.
On the other hand, if these bonds are really going to pay you $24,000
in ~10 years then it is probably that either (1) their current market
value is more than $5-6000, or (2) they are quite risky. Either of
these would change the hold/buy analysis. (1) would reduce the expected
future return, and (2) would raise questions about your risk tolerance
-- should you take your loss now rather than accepting this level or
risk.
|
| 450.2 | Getting near a peak in bonds | VMSDEV::HALLYB | Fish have no concept of fire | Thu Apr 15 1993 09:11 | 14 |
| There's no way to make the kind of prediction you seem to be asking for
in .0 -- IRA's have returns all over the place, just like most investments.
In fact, a zero-coupon bond is a relative rarity in that it offers a
known nominal yield. You don't get that for stocks.
One important question, since you "know" your bonds are worth $24K in
10 years, is what will $24K buy in 10 years? A new car? A new TV?
A new toaster? A toasted ham sandwich? All of the above?
I think now is a good time to sell bonds and dioversify into natural
resource stocks -- oil&gas, gold&silver, paper&copper. Not with all
of your money, but part of it.
John
|
| 450.3 | | NODEX::BRASS | | Thu Apr 15 1993 12:31 | 7 |
| Thanks for your replies. Sorry the info is sketchy. I would never actually sell
them unless I had to.I don't know much about zero coupon bonds or bonds in
general. They were a gift a long time ago. They originaly cost $2000 and when
they mature which is around 20 years from when they were purchased, they will be
worth $24000. On the statements they use to send me it had an average yield of
9%.
Bob
|
| 450.4 | time for zero coupon bonds | MSBCS::HURLEY | | Tue Sep 19 1995 09:31 | 3 |
| With interest rates where they are and my prediction that over the next
year or two that they will go down what are the thoughts out there
about buying into some zero coupon bonds short term? (2-3 years?)
|
| 450.5 | Benham has zero coupon funds | ASDG::HORTON | paving the info highway | Wed Sep 20 1995 13:34 | 13 |
| Richard Band, editor of Profitable Investing, advised his readers to
get into zeros in Oct/Nov '94 and has been touting them ever since.
He thinks long term interest rates have more to fall. For people
who are still "underweighted" in bonds (less than 50 percent of
holdings) he recommends putting up to 20 percent into Benham Target
Maturities Trust of 2020, a zero coupon fund (800-321-8321). Band
thinks shares in this fund will rise another 10 to 15 percent before
year's end. Symbol for the fund is BTTTX.
Your mileage may vary.
-Jerry
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