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Finance: What is a Deep Discount Bond? 13 Views
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Description:
What is a Deep Discount Bond? Bonds are priced in accordance to maturity, coupon, and rating, which all affect the yield. If any of these factors results in a yield less than bonds that are otherwise similarly categorized, it will be discounted in the market compared to its peers. A deep discount bond will be the result of one of the variables having a larger variance than normal, such as the bond’s rating getting lowered or the coupon getting stripped. As a result, the price will be substantially less than its peers’ due to the calculated increase in risk or decrease in return.
- Social Studies / Finance
- Finance / Financial Responsibility
- College and Career / Personal Finance
- Life Skills / Personal Finance
- Finance / Finance Definitions
- Life Skills / Finance Definitions
- Finance / Personal Finance
- Courses / Finance Concepts
- Subjects / Finance and Economics
- Finance and Economics / Terms and Concepts
- Terms and Concepts / Accounting
- Terms and Concepts / Bonds
- Terms and Concepts / Company Management
- Terms and Concepts / Investing
- Terms and Concepts / Managed Funds
- Terms and Concepts / Stocks
- Terms and Concepts / Trading
Transcript
- 00:00
Finance allah shmoop what is a deep discount bond d
- 00:08
like down here where the whales go for a bit
- 00:11
of peace and quiet Look around thirty two cents on
- 00:14
the dollar twenty three cents on the dollar Ah and
- 00:17
here's a twelve center peace quiet so way up there
Full Transcript
- 00:22
Yeah at the surface where the flying things hang out
- 00:25
a lot you know up there that's par one hundred
- 00:28
cents on the dollar crowd but down here lives the
- 00:31
deep discount bond crowd and we have our own set
- 00:34
of rules So who are we Well we're the shipwrecks
- 00:37
the fallen overboard phone companies that didn't work where Puerto
- 00:42
rico and where Greece where the failed the losers les
- 00:46
miserables well this guy used to yield five percent Now
- 00:50
he trades for just twenty cents on the dollar He's
- 00:52
so angry because well he thinks he should be up
- 00:55
there on the surface at par But no the street
- 00:58
has thrown him out and well he sank No michael
- 01:01
phelps there they don't believe that newspapers on paper are
- 01:05
ever going to be a thing again So ironically they
- 01:08
don't even want his paper sad while he thinks he's
- 01:11
a big bargain He's Still paying his coupon five cents
- 01:15
on the hundred cents on the dollar schedule five percent
- 01:18
Yeah only now you khun by that five cents a
- 01:20
year for one fifth of the price Twenty cents That's
- 01:24
right twenty cents for a dollar of par or you
- 01:27
get five times the yield Yep five times five percent
- 01:31
yield or twenty five percent When you're buying that one
- 01:33
hundred cents on the dollar our value for only twenty
- 01:36
cents Yeah crazy high yield if he pays if it
- 01:39
continues to yield the alec he may stop We don't
- 01:42
know Well oops Here comes another Who a ten cent
- 01:45
on the dollar ouch coupon here is six percent So
- 01:47
the yield well if it pays is now sixty percent
- 01:51
crazy crazy high and clearly nobody believes the coupons going
- 01:55
keep in there but deep discount bonds down here have
- 01:57
another strange thing that people wake up They're in the
- 02:00
sun shining land of par Don't think about appreciation meaning
- 02:04
that well let's say that sears reinvents itself and becomes
- 02:07
a coffee selling kid love an amusement park and the
- 02:11
ten cent on the dollar bonds which paid sixty percent
- 02:14
Yield Now Yeah here's the math Well what happens if
- 02:17
they go all the way back up to par Well
- 02:20
you've made your interest of course but you'll also make
- 02:23
a ten times the money on the investment yourself right
- 02:26
invested a dime and go back to pa ra tha
- 02:29
dollar well And then everyone will be singing singing under
- 02:33
the park under the par do dahlia under the sea 00:02:36.728 --> [endTime] and forget that
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