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In your example that's assuming it's a coupon bond, but many (especially the tax free ones) are zero coupon. So if you buy a $1M bond for $850k, but then inter
by refurb 4y ago
In your example that's assuming it's a coupon bond, but many (especially the tax free ones) are zero coupon.
So if you buy a $1M bond for $850k, but then interest rates go up and the value of the bond drops to $650k, then you've lost money through opportunity cost, but you'll still get your $1M at maturity.
Not that different with oil fields. If you assume it will produce X barrels, but only produces 20%*X barrels, not only is the money you're making lower, but the value of the oil field also drops (since its value is dependent upon production potential).
- prepend 4y agoBut that’s not what happened with these oil investments. The coupon paid out 50% over 10 years which is what like a 4% annual return, not very good. But this info isn’t enough to decide anything without the current value of the investment. If the investment is $0 then that’s horrible. If it’s $1 then it’s paid out 50% over ten years so not that great. But if it’s $2, then that’s a good investment. The fact that this crucial information is missing from the article makes me think the author is an idiot or excluding it because it doesn’t support his position.