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A New (as Far As I Know) Sociological Bonds Questionary (18 Feb. 2012) 13 comments
Let imagine that US Treasure issues new type of unliquid bonds with the following 3 rules
a) investor can buy a bond only from US Treasure at principal;
b) investor cannot sell the bond to anybody in the world;
c) US Treasure repays the same principal after X years.
If you agree to invest in such bond:
How big should be the bond yield if the bond pays interest annualy and
1) X= 30 years,
2) X=50 years,
3) X=100 years
?????
What percentage of your income you would like to see from such bonds interest?
I'd appreciate if you answer these questions and indicate your age group.
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This post has 13 comments:
If I understand your question correctly, and I'm not certain I do, I would _not_ buy...
Kiisu
a ten year bond with a fixed rate that guarantees principal payment is a bond, you only stipulated it is illiquid so it is a normal bond with no secondary which should earn a slight premium over 10 year treasuries.
A bond where the interest is accrued and paid back maturity is a zero coupon bond you can calculate its market value by plugging in the interest rate, the maturity and putting zero into the payment part of the formula any financial calculator or excel....or check the prices in the market on various websites, they are issued all the time and then add whatever premium you think is appropriate for liquidity.
Of course there will always be a price at which someone will buy a security from you so the assumption of zero liquidity imo is not security back from you and assume the illiquidity risk the is tin he price, so I dont find the illiquidity is ablsolute. After all GM and other bonds traded at a (very low) price, in bankruptcy bondholders seldom get zero at liquidation, there are almost always some assets that are of value and debtholders have first lien
On the other hand govt rates are such that few would buy this security in the current market. On the other hand such a security from a high yield with a current coupon of 7% might be attractive to someone since the price fluctuations are less than equities and debt holders are senior to equity holders in bankruptcy
30 Yr: 7.5%
50 Yr: 8.5%
100 Yr: 10%
I am 51.
What matters is the real return the nominal return is actually not very relevant, whatever your numbers if you use a nominal rate and lock it in your are taking all the inflation risk.
You are looking for equity type returns from a treasury bond...never happend. Google equity risk premium.
Thank you MartyFL, this is kind of answers I'm looking for!
"He did not ask what I thought I might be possible."
I just conduct survey. You are more than welcome to provide your thoughts.
SDS
Finance aint physics but that one would never occur for long if at all I would jump on the opportunity.
=
I see your point and wonder if you can estimate inflation
SDS
In other words, something much like an iBond with 5% base rate.
I have a federal pension, and my opinions are colored accordingly.
Due to historical spending patterns and current debt levels, I do not have "full faith and credit" in the Federal Government's future ability to pay.
To put it simply, I see a future that includes one or more Federal defaults. I don't know when. I don't know the details. But unless circumstances drastically change, default _will_ happen.
Default might be the simple-in-your-face refusal to pay... it may be payment in worthless notes, it may be some other sleight of hand, but I expect investments in Federal debt incur substantial and increasing risk of loss of purchasing power.
As a result, at some point, I believe, my pension will be cut, possibly eliminated.
Accordingly, I choose not put additional funds at risk with, what I view as, an insolvent enterprise.
If you believe there is no risk of a Federal default in the next 30, 50 or 100 years; if you believe the Federal Government is and will continue to be solvent; or if you believe these problems are either trivial, unimportant, or immediately solvable, then your answers and actions may be very different than mine.
Good Luck and Best Wishes to All...
Kiisu
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