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selfdestruct2 (26.05)

Novice with a Question.



January 11, 2012 – Comments (5)

I had purchased $50 savings bonds for my kids' education on a monthly basis for about 10 years. Upon cashing in some of them, I was happy to discover that $500 in bonds were now worth $718.

Why ?

5 Comments – Post Your Own

#1) On January 11, 2012 at 9:56 PM, Teacherman1 (< 20) wrote:

Interest. No one would buy them if they did not pay interest.

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#2) On January 11, 2012 at 10:04 PM, somrh (85.75) wrote:

There's an inverse relationship between interest rates and bond prices. You bought those bonds when interest rates were higher. Because of that, your bonds are more attractive than ones offered today. So people will bid up your bonds until your bonds are equivalent (in yield) to currently available ones.

If you want to read further look up information on the "time value of money" and "present value" calculations.You can find calculators online that figure all of that information out for you.

As a side note, the longer the time until the bonds mature the more bond prices are sensitive to changes in interest rates. I would guess you bought long dated bonds.

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#3) On January 11, 2012 at 10:05 PM, constructive (99.97) wrote:

They continued earning interest between initial maturity and final maturity. 

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#4) On January 12, 2012 at 12:08 AM, HarryCaraysGhost (84.55) wrote:

May I ask-

Why did you buy the bonds if you did'nt understand that they would appreciate in value...?

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#5) On January 12, 2012 at 1:34 AM, constructive (99.97) wrote:

somrh, that is not an accurate description of savings bonds. Unlike regular bonds there is no secondary market. The price they are redeemed at is based solely on interest earned.

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