Good for a golf score; bad for a bond.
Bonds are issued with a face or coupon rate of, say, 6% and sold for units of $1,000, or 100 cents on the dollar. But if prevailing interest rates go up, or this bond's creditworthiness stumbles, then its interest rate will go up. Not by dint of the coupon rate changing, but because the price of a bond unit will fall below 100 cents on the dollar, aka 'par,' so that for the same stream of 60 bucks a year, instead of paying a grand, a buyer of that bond can pay, say, 900 bucks for that 60 a year.
The yield to the buyer is then 60 over 900, with a little kicker each year as the bond comes closer to maturity at a grand and, in theory, appreciates a little bit.
We'll let you do the math.
Related or Semi-related Video
Finance: What is maturity?1 Views
Finance allah shmoop What is maturity and oh yes the
irony asking someone It shmoop to read about maturity but
we'll do our best here So maturity what is it
Well it's just the date when a debt becomes do
You buy a thousand dollar bond with a maturity date
of may thirty one twenty twenty five Also what happens
on may thirty one twenty twenty five Well that's the
date you'll get your grand back and you'll have the
interest for that period as well So if you had
a six percent bond on that last payment may thirty
one twenty twenty five trivia question how much would you
get back Yes ah thousand dollar principle You'd get returned
but you'd also get what What yes the final payment
of thirty bucks right cause bonds pay interest twice a
year six percent sixty dollars a year You get that
thirty bucks back and that'd be the end of it
We love the semester system here it's from up We're
hoping we can age beyond the seventh grade level that
we seemed to live at here pretty soon for said
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