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From: dgh@sun.uucp (David Hough)
Newsgroups: net.invest
Subject: Re: long term investments
Message-ID: <2067@sun.uucp>
Date: Tue, 19-Mar-85 22:45:21 EST
Article-I.D.: sun.2067
Posted: Tue Mar 19 22:45:21 1985
Date-Received: Sat, 23-Mar-85 04:23:17 EST
References: <1336@sunybcs.UUCP> <610@ccice2.UUCP>
Reply-To: dgh@sun.UUCP (David Hough)
Distribution: net
Organization: Sun Microsystems, Inc.
Lines: 25
Summary: 

In article <610@ccice2.UUCP> bwm@ccice2.UUCP (Bradford W. Miller) writes:
>Some things to remember when buying zeros: They are
>a) relatively illiquid (they are hard to resell).
>b) they are VERY volitile. Minor interest rate changes can (because of
>the compounding over 20 years) change the current value of your bond
>significantly. Therefore, you are reccomended to only buy what you intend
>to hold to maturity. An example, suppose you bought a 20year 11% CAT today
>(hypothetical market value) for $5000 face value for $587.50. If interest
>rates on the CAT rose to 14% a year from now and you had to sell, you
>could only get $382.50 for it (ignoring commissions which are usually figured
>into the interest rate quoted by your broker). Thats a 35% loss!! All you
>are 'guaranteed' by the zero (and the guarentee is as good as with any bond,
>i.e. if you want to put down $5/1000 for a 40 year 16% zero, do you really
>expect the company or local government project to be there in 40 years) is
>that at maturity you can cash it in for the face value.
>

I have heard that the commissions, particularly at major brokerage houses,
are outrageous on zeros, to the extent that the SEC is investigating.  I would
suggest buying them from a broker who will state the commission explicitly
(rather than "net" prices) and preferably from one whose rates are fairly low.

David Hough