Bond price

### Bonds – Bonds are traded on the stock exchange and their price is determined by supply and demand, similar to stock trading. – When demand for them increases, their price increases. – When many people want to sell bonds, their price decreases. ### Assaf’s story – At the beginning of the year, Assaf bought 1,000 bonds of 1 NIS par value from the company “Osem” that pay interest of 20% per year and have a maturity date of two years. – Assaf paid 1,000 NIS for them, that is, 1 NIS for each bond. – Assaf expects to receive the following payments from “Osem”:
– The principal is returned only at the bond’s maturity date, in this case after two years. – Assaf held the bond for the first year and at the end of it received interest from “Osem” in the amount of 200 NIS (20%). – After that, he needed money and decided to sell the bond. – He managed to sell the bond on the stock exchange for only 900 NIS. – In this year, Assaf earned only 100 NIS according to the following calculation:
– Paid 1,000 NIS when he bought the bond. – Received 200 NIS in interest and another 900 NIS for selling the bond at the end of the year. – Assaf therefore earned 100 NIS, which is 10% on his investment (100/1,000). ### David’s story – David bought the bond from Assaf for 900 NIS.
– Will receive 1,200 NIS at the end of the year, which includes:
– 1,000 NIS for the redemption of the principal (the bond matures at the end of the second year).
– 200 NIS interest for the second year.
– It therefore follows that David should earn 300 NIS this year on an investment of 900 NIS, or 300/900 = 33%.
– Certainly a more successful investment than Assaf’s.