Fast forward five years. The utility company hadn't just survived; it was thriving. As the "fear" evaporated, the bond's price climbed back toward its $1,000 face value.
By buying at $650, Arthur had unlocked a double-sided gold mine: buying bonds at a discount
AI responses may include mistakes. For financial advice, consult a professional. Learn more Fast forward five years
Bonds have a legal obligation to pay back the full $1,000 at the end of their term. Arthur was essentially buying a future $1,000 for a $350 discount. By buying at $650, Arthur had unlocked a
The year was 1994, and the sleepy town of Oakhaven was about to learn a lesson in "the art of the discount" thanks to its most eccentric resident, Arthur "Penny" Penhaligon.
The bond still paid a fixed interest rate (coupon) based on the original $1,000. While new buyers were getting 5%, Arthur’s effective yield-to-maturity was nearly double because he had paid so much less for the same interest check.
