What is a secondary market CD?

Discussion in 'Financial Planning' started by Homer Simpson, Nov 4, 2010.

  1. 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?
     
    Homer Simpson, Nov 4, 2010
    #1
    1. Advertisements

  2. Homer Simpson <> 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
     
    Rich Carreiro, Nov 4, 2010
    #2
    1. Advertisements

  3. Homer Simpson

    Dave Dodson Guest

    On Nov 4, 11:44 am, Homer Simpson <> 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
     
    Dave Dodson, Nov 4, 2010
    #3
    1. Advertisements

Want to reply to this thread or ask your own question?

It takes just 2 minutes to sign up (and it's free!). Just click the sign up button to choose a username and then you can ask your own questions on the forum.
Similar Threads
  1. Old Car
    Replies:
    3
    Views:
    468
    D. Stussy
    Apr 16, 2005
  2. Replies:
    2
    Views:
    263
    rick++
    Mar 1, 2006
  3. Steven C
    Replies:
    11
    Views:
    615
    Arthur Kamlet
    Oct 9, 2006
  4. pixel_a_ted
    Replies:
    1
    Views:
    752
  5. Bill Woessner

    Treasury Bond Secondary Market

    Bill Woessner, Jul 19, 2011, in forum: Financial Planning
    Replies:
    5
    Views:
    785
    cporro
    Jul 25, 2011
Loading...

Share This Page