Interest-Rate Derivative

Finance allah shmoop What is a crude interest A crude

interest would be an investment holding in oil Black crude

texas t remember jed boy Howdy coming Listen to a

story about a man named about that Alright all good

but that's not what a crude interest is at all

while street never sleeps right So even though a given

bond might pay forty bucks twice a year what happens

if you buy the bond midway through a semester period

Like let's say this particular bond has a coupon paying

eight percent a year So on a thousand dollars a

principle this bond pays eighty bucks a year in the

form of interest or forty bucks twice a year paid

on june thirtieth in december thirty first Well think about

the number's here on a monthly basis each month that

bond creeps closer to its next interest payment and over

the course of a year there are twelve creeps Different

creeps each month that goes by the bonds creep further

into the eighty dollars a year or eighty dollars per

twelve months or eight twelves of a bond payment each

month Well at eighty bucks a year despond pay six

Dollars and sixty seven cents a month in interest Yeah

we got the math there Yeah So let's say you

sell it halfway into its period Presumably the market price

would reflect the accrued interest on the bond or three

months worth of interest or three times that six sixty

seven figure or yes twenty bucks And that makes sense

right You've held that bond a quarter a quarter of

a year a quarter of a year's interest of eighty

boxes one fourth of eighty or yep twenty So yeah

the math works What do you know So the price

of the bond would creep upward to reflect that accrued

interest That is if you sold it on the exact

end of the quarter that thousand dollar bond which was

conveniently selling it exactly part The end of the last

payment Well that bond would likely sell in the market

place for about a thousand twenty dollars The buyer would

get a check for forty bucks just ninety days later

from the a company that issued the bond And well

they can take that forty dollars and reinvested in crude

oil How about that Now you've made old jed very

proud So come and listen to a story about a

man named shmoop Poor rests A writer barely kept his

family fed and one day there was a site of 00:02:18.46 --> [endTime] web and well stuff happens