ShmoopTube

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Finance a la shmoop what is par value okay mercifully we'll dispense [Man taking a swing with a golf club]

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with the golf jokes but with one exception par in golf and it relates

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here is the right number i.e the one you're shooting for the one you're

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supposed to hit that is a par for golf hole is designed so that you hit your [A golf ball landing on the fairway]

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drive then you hit your approach shot which is meant to land on the green and

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then your quote supposed to unquote to putt for a total of four strokes at par [Man struggling to put the ball in the golfer hall]

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4 right and it may or may not include saying close enough and picking up your

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ball five feet away from the hole while calling it a gimme so yeah that's par

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four strokes on a par 4 well in finance par value generally relates to the [Definition of par value relating to pricing of bonds written on chalkboard]

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pricing of bonds and you'll see where we're going here with the right number

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in quotes for a bond a corporation needs to borrow money to say build a new nose [Elephant using a noseclipper and chasing a man]

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clipper factory well that new factory will allow the corporations

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export Clippers to China and allow its products to be more high-tech yeah these

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things are now the equivalent of a Brazilian wax for your nostrils anyway [Man giving a Brazilian wax to another mans nostrils]

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the company along with its bankers believes that it should have to pay

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about six percent interest on the loans it's taking out so it markets its bonds

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as six percenters and in the process a more positive story is told to Wall [Men discussing the nose clipper industry bonds on Wall Street]

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Street about the future of nose clipping technology as pioneered by shnozholes

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Inc the perceived risk in the bond so sound and there's a lot of demand by [People looking up at Shnozholes, Inc building]

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them the standard unit in which a bond is generally sold is a thousand dollars

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that's a thousand dollars for each unit of a bond got it so on one unit of a

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typical bond that thousand dollars interest is paid twice a year ie in this

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case the company would be paying thirty bucks twice a year to rent each unit of [Company paying a bank $30 twice]

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it's thousand dollar loan so the company issues the bonds and all of a sudden

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they trade up on strong demand from Wall Street to eleven hundred dollars per

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unit well a new buyer of the bond would be getting less than six percent [A new person buying bonds from the company]

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interest when they bought that bond for 1,100 bucks because even though they

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still get 30 bucks twice a year in bond rent money instead of paying a grand for

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that 60 bucks a year they had to pay 1100 dollars for it in fact at 11 hundred [Buyers trading $1000 for $1,000]

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dollars and still getting 60 bucks a year the interest rate has fallen to

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about 5.45 percent ie less than six the quote right unquote value of that bond

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or its par values yeah we went there, was a thousand bucks that's where it was

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priced when it was offered and it's that thousand dollars from which the interest [Bank with a thumbs up beside the par value price]

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payments are pegged how do we know what par value is well you can guess.. little

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birdie told us [golfball striking a little bird perched on a tree]

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