It is calculated by dividing the annual coupon payment by the par value of the bond.
Why he thought a discounted 3% bond was better value than a 5% bond sold at par is unclear.
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The benefit of the latter is the incentive provided by the chance that the buyer will be able to redeem the bond for more than par.
If you assume that the bond is selling at par, has an average coupon of 5.5%, say, and you use a discount rate of 6%, then you are implicitly saying that the bond is actually riskier than the market perceives it to be.
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Ten year bond prices have fallen below par after trading well into the 120s for all of September.
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The company will let you put the bond back to it at par in 2004, which is good if rates rise.
If not, remember that the bond you purchase should pay par at maturity, so if nothing changes with the company and you intend to hold the paper until it matures, you should be fine.
Good news for Entergy-Koch, which has an A bond rating--about on a par with that of a typical big-city bank.
It is important to note that the nominal yield does not estimate return accurately unless the current bond price is the same as its par value.
Some go so far as to say that if a bond is insured and bondholders receive back the par value, no default has taken place, just an unscheduled call.
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The investment grade rated bond eventually sold at a slight discount from par and fetched a yield of 4.5%, over 250 basis points over 10 year U.S. Treasury bonds.
If you are going to use a discount rate of 6% AND assume the bonds are selling at par, then you MUST assume that the coupon on the bond is also 6%.
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Lottery bonds are a type of government bond that has a chance to be randomly redeemed at a value that is higher than par value.
Say the rate on the Spanish bond was 5% and Corzine was able to purchase at a 10% discount to par (100) or 90% of face value.
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Another risk is if an investor buys a premium priced bond and the borrower prepays by refinancing or selling the home then the Note is paid back at par and the investor loses the premium.
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The bond fell as much as 4%, or as low as 96, from its face value at par.
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