ShmoopTube

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Finance- a la shmoop....What are above par below par and at par...First what is [Man discussing at par on a golf course]

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at par and yeah this may be not enough to make the tour but not too shabby but

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what about in the finance world if a bond or other dead or preferred stock is

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trading at par or at a hundred it's trading at face value and investors

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buying the bond expect to get a return that matches the bonds coupon or [Dollar bills falling]

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interest or distribution rate at par bonds are rare though most trade either

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above or below par well when interest rates drop investors are willing to pay

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more for older bonds with higher coupons and bonds will then trade above par when

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interest rates increase while those lower interest rates look about as [Interest rates go up on a see-saw]

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appealing as mold on your roast beef sandwich and bonds will trade below par

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for less than the face value well interest rates aren't the only things

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that effect a bonds ability to trade at par by the way company news can affect

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it as well like if an alien spaceship attacks your factories and kidnaps your [Alien spaceship shoots factory and explosion occurs]

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staff well your bonds value likely will decrease so let's say a bond yields 7%

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meaning that for each thousand bucks you get 35 dollars paid to you twice a year

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well this bond was issued eight years ago and now similar risk bonds have gone

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way up in price and yields have gone way down so this bond might be quoted at 110

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meaning that you pay eleven hundred dollars for that same sheet of paper

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today so that your yield is not in fact 7% but rather 10 percent less than 7%

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because you've paid and percent more for the bond that is you paid 10% over par

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that new yield is 6.3% you paid 10 points over par for

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the same 35 bucks twice a year that you're getting so that's above par below

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par and at par if you're ever more than 30 above par well there's probably at [golf club stuck in a tree]

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least one club stuck in a tree somewhere or swimming in a lake

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