Episode 34: The Four Numbers

Hey! I'd love to hear your thoughts, send me a voice note.Episode Summary When pulling up a bond quote, investors are faced with a string of numbers that can seem confusing. This episode decodes a standard bond quote, explains how par value, coupons, maturity, and price interact, and reveals the hidden "fifth number"—accrued interest—that you must pay on top of the quoted price.Key ConceptsThe Standard Quote: A typical quote—such as an issuer name, followed by 5.25%, a date in 2031, and 98.4—contains the four defining metrics: issuer, coupon, maturity, and price.Par Value: What the issuer contractually promises to repay at maturity (typically $1,000 per bond in Canada).The Coupon: A fixed percentage of par value, not your purchase price. In Canada, coupons are conventionally paid semi-annually.Maturity: The date the principal is returned. Longer maturities carry higher price sensitivity to interest rate movements.Price: Quoted per $100 of face value (e.g., 98.4 means $984 for a $1,000 bond). Above 100 is a premium; exactly 100 is par; below 100 is a discount. A discount tells you the market demands a higher yield than the bond's fixed coupon provides.Clean vs. Dirty Prices (The Fifth Number)Accrued Interest: If you buy a bond between coupon payments, you must compensate the seller for the interest they earned while holding the bond prior to the sale.Clean Price: The quoted price of the bond excluding accrued interest.Dirty Price (Full Price): The actual cash you pay to buy the bond, which is the clean price plus accrued interest. Quotes are clean, but your transaction statement will be dirty.Tax Traps & ComplicationsZero-Coupon Bonds: These pay no coupon, are issued at a deep discount, and mature at par. In Canada, you may be taxed annually on this accreting value as interest income, even though you receive no cash before maturity—making registered accounts the ideal place to hold them.Disclaimer This show provides educational content and does not constitute financial advice. Speakers are not registered to advise you on securities; please consult a licensed professional for your personal situation.