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What is a secondary market CD?

 
 
Homer Simpson
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      11-04-2010, 04:44 PM
I bought a secondary market CD from Fidelity since the rate was higher
( ~2% for 3-year CD ). In the transaction it shows I spent:

Principal amount: $36,000
Interest: $434
Net amount: $36,434

YTM: 1.99 %
FIRST COUPON 01/23/2009
THIS IS AN UNSOLICITED TRADE
RATINGS: NOT RATED
FDIC INSURED

What is this "interest" amout? Is it something I get back when it
matures? Is the 1.99% rate applicable to the principal or net amount?

 
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Rich Carreiro
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      11-04-2010, 05:52 PM
Homer Simpson <(E-Mail Removed)> writes:

> I bought a secondary market CD from Fidelity since the rate was higher
> ( ~2% for 3-year CD ). In the transaction it shows I spent:
>
> Principal amount: $36,000
> Interest: $434
> Net amount: $36,434
>
> YTM: 1.99 %
> FIRST COUPON 01/23/2009
>
> What is this "interest" amout? Is it something I get back when it
> matures? Is the 1.99% rate applicable to the principal or net amount?


It's the accrued interest from the last time the CD made an
interest payment.

Say you have a CD that makes an interest payment every six months.
You buy it four months after the last payment (so two months before
the next one). You'll get a payment of six months of interest even
though you only owned it for two months and the seller gets nothing
even though he owned it for four months. So when you buy you have
to cough up four months of interest to him to even things up.

--
Rich Carreiro (E-Mail Removed)

 
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Dave Dodson
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      11-04-2010, 05:57 PM
On Nov 4, 11:44*am, Homer Simpson <(E-Mail Removed)> wrote:
> I bought a secondary market CD from Fidelity since the rate was higher
> ( ~2% for 3-year CD ). In the transaction it shows I spent:
>
> Principal amount: *$36,000
> Interest: $434
> Net amount: $36,434
>
> YTM: 1.99 %
> FIRST COUPON 01/23/2009
> THIS IS AN UNSOLICITED TRADE
> RATINGS: NOT RATED
> FDIC INSURED
>
> What is this "interest" amout? Is it something I get back when it
> matures? Is the 1.99% rate applicable to the principal or net amount?


The "interest" is the amount of interest the previous owner earned
between the last coupon date and the time he sold the bond. You paid
that to the previous owner. On the next coupon date, you will get
interest for the total time between the two coupon dates. The net
effect is that you earn interest at 1.99% on the principal amount from
the date you bought the CD until the next coupon date, and then on to
maturity.

Dave

 
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