Calculating corporate bond returns

Picking up from my previous article, I must say that I have lost count of the number of corporate bonds that have been available in the Kenyan market in the last +12 months and took a form that was somewhat like this:

“*13.5% 5 year corporate bond with KES 100,000 minimum to invest*”

**THE MATH…**

13.5% x 100,000 = 13,500 is the interest payable annually

This is usually paid out semiannually and so that means 6,750 every half year.

There are 2 deductions to consider in the 6,750 though…

- Withholding tax at 5% * 6,750 = 337.50
- Underwriting charges (
*because the bond is offered by the bank on behalf of a corporate organization with a capital intensive project e.g. real estate*). I don’t know how much it is but it must be around 1% which would be 67.50

Therefore the net amount that would hit ones account would be 63,450 (*i.e. 12,690 each year over a period of 5 years*)

O yeah and you would get back 100,000 in the final year

**IMAGINE…**

If corporate bonds were up for grabs each year… And that an entity (*individual or company*) invested at least once annually… In deed there would be an endless cycle of positive cash flows!!!

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Rule of thumb – never let money lie idle if you have the opportunity to invest it. Opportunity in the sense that you estimate that you will not require to use the cash in the near future / you’ve not identified this ‘amazing’ investment project. And do not despise small returns, there is power in compounding! and in waiting 🙂

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