The town gossips at the diner laughed. "Arthur’s buying debt in a sinking ship," they chuckled. But Arthur had read the fine print. He knew the utility’s assets were solid and that the "sinking ship" was just undergoing a very expensive repair.
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. buying bonds at a discount
On the day of , Arthur walked into the same diner. He hadn't just collected high interest for five years; he also cashed in on that $350-per-bond capital gain. He bought the whole room a round of coffee and pie, smiling as he explained that in the world of bonds, sometimes the best treasures are found in the "damaged goods" section. The town gossips at the diner laughed
By buying at $650, Arthur had unlocked a double-sided gold mine: He knew the utility’s assets were solid and