Interest rates have been steady at 6% for B-rated bonds, but the Fed decided to lower rates half a point. The company that issued bonds at 8.5% five years earlier, and which still has 15 years to go until they are paid off, seizes the opportunity to buy back their own bonds...at a premium...refinance them, and issue new paper at a cheaper 5.5%.
The phrase "at a premium" usually refers to bond redemptions in this vein, such that the issuer pays something like 102 cents on the dollar to buy back their bonds, and presumably reissue paper at cheaper interest rates. The phrase also refers to equity transactions, when Amazon or some other company buys the shares of another company "at a premium"...like, the shares of Shmears, the greatest seller of bagel spread, were trading at $14 last week and, after Amazon bid $17 a share to own the whole company, those shares are said to have been sold "at a premium" to their former $1.14-ish a share price.
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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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