Q: Hi With respect to Steve's question, about Series 1 debentures trading at $136-$138 currently and applying for new debentures through Rights for a price of $133, is it not true that Debentures currently trading also have an embedded additional value of $3.25, quarterly interest ( $3.25x4=$13.30 annual), payable on October 1st. Whereas, the debentures acquired through rights will be issued only on October 6 and are not eligible for that interest for quarter Jul-Sep and hence the price differential ?
Thank You
Thank You
5i Research Answer:
Not exactly; while the new debentures of course will not get the current coupon payment, debentures/bonds always trade with accrued interest. So the traded bonds are entitled to their payment, but if sold the buyer still has to cover and pay this interest up to the settlement date. In other words, the market price is the market price and interest accrued is additional.