bond value converges to par at maturity correct, careless, somebody, accounting, only

stronger

This is true only from accounting perspective, correct? In reality, do bond prices always converge to par? If so, then if I buy a bond today with the intention to hold to maturity, then I could careless about the bond price fluctuation in the interim. Can somebody clear this for me?

hariRaj

thanks. in reality or just accounting?

MythosHF

both, remember that bond price is equal to par because par is what issuer pays to bondholder. fluctuation during lifeof the bond does not matter if htm except for reinvestment risk of coupon payments

bapswarrior

yes the pull to par concept applies to both real markets and accounting treatment. However contrary to accounting treatment, in real life I think the bond managers would be concerned about the duration, price movements and such even if the bond is held to maturity, wouldn't be a "couldn't care less what happens till maturity approach".

manasib

Bond prices converge to par at maturity, because at maturity, the only payment is the final coupon and the par value. So, if you think of it in terms of a PV of a lump sum, it should make sense.

If coupon rate = market rate (i.e. the YTM), price = par. If coupon not equal to par, but the market rate stays constant, the price will converge monotonically to par (i.e. it will get closer to par each and every period). However, if the market rate changes, the convergence won;t be monotonic.

dontknow1987

You wouldn't care if you were the only one looking at the statement. But from a clients perspective you wouldn't want them seeing statements and their bonds have decreased in value. Also if interest rates are at like 15 per cent and your getting 4 from a bond, I would be pretty pissed, whether i was holding to maturity or not.