Issuing and purchasing bonds to make an infinite amount of money
Hypothetical numbers
Issue: 3% coupon, $1,000,000 face value, 20 year bond (annual payments)
Purchase: 5% coupon, $1,000,000 face value, 20 year bond
Annual Interest Expense on issue = 1,000,000 x 3% = $30,000
Annual Interest Receivable = 1,000,000 x 5% = $50,000
Profit = $50,000 - $30,000 = $20,000
Highly leveraged, but if you choose higher rated bonds, the default risk would be low.
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