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Bond calculator question

gman57
in Fund Discussions
I buy a bond fund and it adds to the principal with monthly dividends so then next month dividend is based on the higher principal.

or I buy a 1 year corporate bond that pays yearly so I only get one payment.

What's better? Is there a calculator that compares x% calculated monthly compared to x% calculated yearly?

I'm thinking a fund that pays monthly you'd be better off but what's the percentage that makes a difference?

Am I on the right rack or missing something.

Comments

  • gman57
    edited May 2
    I found a calculator calculator.net

    $100,000 5% monthly 1 year $5116 interest
    $100,000 5% yearly 1 year $5000 interest
    $100,000 5% monthly 5 year $28336 interest
    $100,000 5% yearly 5 year $27628 interest

    so it makes a difference but I'm looking for x% yearly is better than x% monthly.
  • yogibearbullyogibearbull
    Individual bonds typically pay interest every 6 months, and reinvestments of small amounts won't be practical. So, low ER bond fund is the way to go.

    Individual zero-coupon bonds do have built-in reinvestments at interest rate determined at the time of purchase and if held to maturity.

    Annual simple 6% will make $100 into $106 in 1 year, $172 in 10 years.

    If compounded monthly, $100 will become $106.17 in 1 year, $181.94 in 10 years. So, compounding matters over long times.
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