What is Par Value of a Bond and Callable Bond (simply explained in 1 minute)?!
Par Value is the original amount of a Bond and that value can be Above or Below that value.
Par Value for a bond in USA set $1000. If you see a Bond for $950 that means the bond is $50 Below Par. This means the Bond is at a Discount (most commonly used with Treasury Bills.
Note: Par Value of a Bond is different than Par Value of a Stock
The Par Value is the amount of money that the issuers of the bond promise to repay by a specific date called maturity date at a specific price.
This is beneficial because the person giving the loan is guaranteed income and a repayment of the bond (loan) at a specific interest.
The bond becomes a Callable Bond when the company that received the loan pays back the loan in full without the interest.
Think of this as paying a Car payment off early. You save yourself thousands interest payments.
Bonds are usually being traded at a premium or discount.
A good rule of thumb is look for Bonds trading at a 6% interest.
Buying a Bond at premium means the lender will slightly be overpaying for the bond but to many lenders it doesn’t matter because of the fixed income. Also Premium Bonds tend to pay higher interest!
Buying a Bond at a discount is good because you are buying it a discount but it also can be more high risk.
Now lets some all of this up!
A Bond is a loan.
A company offers a bond (loan) for $20,000 at a discount rate of $18,000 with a 5 year maturity date.
The maturity date is date an investor can expect to have principal part of their loan repaid.
This means the loan terms are $20,000 with a 5 year repayment term.
This means company promises to pay the full Par Value of $20,000 even though they lent $18,000.
That’s a quick article on Bonds and Par Value!
Website to Buy Bonds!
https://www.treasurydirect.gov/indiv/products/prod_tbonds_glance.htm
