Below Par

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.