Think: agitation for buyers of bonds.
The coupon of the bond was 6%, and the bankers wanted to sell bonds for Gillette right around par. But during the road show, management gave such a compelling case for the future of shaving going well beyond just men's faces, that investors got excited and bid up the price of the bond.
As a result, the bond premium ended up trading for 104% of par, or rather, $1,040/unit, which still paid $30 twice a year, or $60 annually. It meant that bond holders, in paying a premium for the bond value, received somewhat less than the 6% yield they had hoped they would be getting from their favorite razor company.
The 4% above market, or above par premium of those bonds is called agio. No relation to the farmer who had the dog...and you know his name-o.
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Finance: What are Bonds?393 Views
Finance a la shmoop what is a bond? well a bond is your word your promise your [Women shake hands]
handshake your John Hancock on a contracted piece of paper your mortgage
your credit card debt yeah their bonds to your "I swear I'm not a deadbeat"
declaration... that's your bond right well bonds come [Man lying on a sofa]
in many complex flavors and compositions simply put bonds are loans aka debt you
borrow money or you promise or you you bond that
you'll pay it back when you borrow money the amount you borrow is called the
principal you pay rent on that amount borrowed and that rent is called [rent appears at bank]
interest to the entity loaning you the money that interest is called yield
thank you very much for the yield like if the lender rents you a grand for a
year and you pay them a thousand 80 bucks at year-end paying back the
principal and then the rent on the money while the lender will have had a yield [Yield of lender appears]
of 8% on the grand that they loaned you so that's a bond you borrow money you
pay it back and if you don't the person who loaned you the dough well they [Person stamped with property of shmoop bank]
generally own your tuchus and yeah you know what Shakespeare said about bonds
yeah that's what he said so if you don't really know what you're doing don't do
it...
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