ShmoopTube

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Finance allah shmoop what is a deep discount bond d

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like down here where the whales go for a bit

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of peace and quiet Look around thirty two cents on

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the dollar twenty three cents on the dollar Ah and

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here's a twelve center peace quiet so way up there

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Yeah at the surface where the flying things hang out

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a lot you know up there that's par one hundred

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cents on the dollar crowd but down here lives the

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deep discount bond crowd and we have our own set

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of rules So who are we Well we're the shipwrecks

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the fallen overboard phone companies that didn't work where Puerto

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rico and where Greece where the failed the losers les

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miserables well this guy used to yield five percent Now

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he trades for just twenty cents on the dollar He's

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so angry because well he thinks he should be up

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there on the surface at par But no the street

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has thrown him out and well he sank No michael

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phelps there they don't believe that newspapers on paper are

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ever going to be a thing again So ironically they

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don't even want his paper sad while he thinks he's

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a big bargain He's Still paying his coupon five cents

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on the hundred cents on the dollar schedule five percent

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Yeah only now you khun by that five cents a

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year for one fifth of the price Twenty cents That's

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right twenty cents for a dollar of par or you

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get five times the yield Yep five times five percent

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yield or twenty five percent When you're buying that one

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hundred cents on the dollar our value for only twenty

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cents Yeah crazy high yield if he pays if it

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continues to yield the alec he may stop We don't

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know Well oops Here comes another Who a ten cent

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on the dollar ouch coupon here is six percent So

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the yield well if it pays is now sixty percent

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crazy crazy high and clearly nobody believes the coupons going

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keep in there but deep discount bonds down here have

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another strange thing that people wake up They're in the

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sun shining land of par Don't think about appreciation meaning

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that well let's say that sears reinvents itself and becomes

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a coffee selling kid love an amusement park and the

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ten cent on the dollar bonds which paid sixty percent

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Yield Now Yeah here's the math Well what happens if

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they go all the way back up to par Well

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you've made your interest of course but you'll also make

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a ten times the money on the investment yourself right

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invested a dime and go back to pa ra tha

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dollar well And then everyone will be singing singing under

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the park under the par do dahlia under the sea 00:02:36.728 --> [endTime] and forget that

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