6. What is a Bond

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12 жыл бұрын

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In this lesson, we first learned that a bond is nothing more than a loan. There are many forms of bonds that a person can invest in, but the four primary forms are corporate bonds, Municipal Bonds, State Bonds, and Federal Bonds. We know there are inherent risks associated with purchasing a bond, but many of them can be mitigated by treating the investment as if you were a bank lender.
We learned that Bonds can be a very lucrative investment as long as you purchase the security (or bond) at a strong yield and minimal risk. If you're purchasing a bond as a long term investment, we know that it's market price will be more volatile during the first 15 years as interest rates change. Intelligent investors can take advantage of these price fluctuations is they know how to properly value the bonds.

Пікірлер: 327

@davesmitte 10 жыл бұрын

You have a gift for explaining complicated things in a simple to understand manner. I sincerely appreciate your matter of fact, simple explanations. A truly heart felt appreciation from me to you. Many thanks.

@Os_-tw4ot 9 жыл бұрын

***** I am doing my IMC exam and your information is so easy to understand. Amazing

@Decade11124 8 жыл бұрын

+Preston Pysh better than my professor lol

@stupidityosh 7 жыл бұрын

Lak lak thora

@lauranyc4966 3 жыл бұрын

So very true 🙏🏻👍🏻

@awesomeblossom2417 Жыл бұрын

Great comment and very true. I'm really enjoying these videos.

@nayyarsidharth 6 жыл бұрын

For clarity on the $1418 figure: If A holds a 5% bond of $1000 face value - at the end of 30 years ( maturity period) he would make $1500 ($50 x 30) in interest bringing the total to $2500 ($1000 + $1500). Now interest rate drops to 2.83%. Mr. B is looking to invest in bonds. If B want to make $2500 at the end of 30 years (at 2.83%) he would have to invest $1418 today instead of $1000 (as Mr. A did). So Mr. A can sell his bond for anywhere between $1000 - $1418 to Mr. B.

@chrisrabe 4 жыл бұрын

I know it's been a year later and technicalities might not matter, but I did calculations based on what you said and my results didn't match $1418. I must've did something wrong. Bond A Details - 5% interest - $1000 face value - 30 years maturity period Return = $2500 30 years x ($1000 x 0.05) + $1000 = $2500 Bond B Details - 2.83% interest - ?? face value - 30 years maturity period Problem: find "face value" from the details of Bond B let f be face value 30 x (0.0283f) + f = $2500 0.849f + f = $2500 1.849f = $2500 f = $2500 / 1.849 f = $1352 Where did that extra $66 ($1418 - $1352) come from? Is that like a mark up or something?

@mikereznikov5521 4 жыл бұрын

@@chrisrabe Hey its 30 year maturity for A, but for B, which buys them 2 years later, have only 28 years to wait for maturity for its 28 * (0.0283f) + f = 2500 0.7924f + f = 2500 1.7924f = 2500 f = 2500 / 1.7924 f = 1394.77 for some reason, they calculated that for 27 years and not 28, or im missing a year somewhere

@alanm435 4 жыл бұрын

@@mikereznikov5521 he added the 2 years of getting the bond coupons

@aldeebsaad 4 жыл бұрын

Sidharth Nayyar thank you

@ngkristal2895 3 жыл бұрын

but im still so confused that why is the 5% bond worth $1418. 0.0

@superAweber 10 жыл бұрын

Wow, this is jaw dropping. No one ever came close to even showing me a tenth of this. Thank you Preston!

@arginvestor5331 10 жыл бұрын

***** Genius

@mark91345 6 жыл бұрын

After all these years, now I know what a bond is. Thank you for such a good, concise explanation!

@mohd.sufianbinhassan5623 Жыл бұрын

cannot agree more haha

@carsongabriel1949 Жыл бұрын

Same here 🎉😂

@salazarselenegarcia2864 8 жыл бұрын

this is exactly what I was looking for!! omg it took me years just wondering about bonds and you cleared up my doubts in 15 minutes, you do have a gift! I just watched other tutorials but all of them left me still wondering, I love this!! thank you so much!!!

@emild3658 5 жыл бұрын

Thank you very much Preston Pysh for taking the time and effort in putting together all this content. It is unparalleled on youtube, being very clear and comprehensive. I am lucky to have discovered your content now, more than 7 years after its original release. 7 years, wow.

@CHRIS-tv7hf 9 жыл бұрын

Thank you, i finally understand bond mannn, i cant find a good explanation anywhere as good and clear as you are!

@TheViviSweety 9 жыл бұрын

Thank you Preston you are amazing! Great explanation and easy to understand, although I still need to figure out how the $1418 came out but I will keep watching all the videos and they really helped me a lot. Thank you for making them!

@liliamvaldes473 4 жыл бұрын

Absolutely amazing the way you explained bonds! It could not get better. You are certainly gifted!

@geraldsaldanha8895 5 жыл бұрын

Thank you, Preston. Those confused about how he arrived at $1418 bond value, please use excel spreadsheet to understand the valuation 1. In the first column write numbers 1-56 (pending semi-annual life term of the bond / 28 years *2 = 56) 2. In the second column, write the semi-annual coupon value i.e $25 (@5%) besides number 1-55 and besides line 56 write $1025 since you will get your initial investment of $1000 back due to bond maturity... 3. Third column, you need to calculate the present value interest factor. Since the semi-annual interest rate is .01415 (annual interest rate of.0283/2), you can calculate the present value interest factor by using the excel formula =(1+.01415)^t (here t is the corresponding time mentioned in the first column. 4. In column 4, you just need to divide column 2 by column 3 and then add the values in column 4, you should get $1417.684026

@mutar5 6 жыл бұрын

In the history of watching youtube videos for approximately 7 years consistently. I claim this video to be the best explainotary video on the internet. I am an engineer, so I watched about 7 thousand educating videos, so I know what I am talking about.

@aliceyalenga6382 3 жыл бұрын

This presentation is the best on Bonds I have watched. Its truly been well explained

@chirag3179 6 жыл бұрын

Amazing explanation in this video. This is first time I truly understood the concept of bond

@bhedge88 7 жыл бұрын

You did such an excellent job explaining this concept. It was so easy to follow and the visual effects really provided so much clarity.

@paratrip 6 жыл бұрын

You are doing an extraordinary service to all of humanity. May you have a long and happy life

@rohandhawan7341 10 жыл бұрын

Hi Preston! Loving your tutorials. I would appreciate if you could tell me how did you figure out the interest rates of bonds,p/e value and dividend yeild of the stocks just by looking at that graph? I was unable to calculate the same thing just by looking at the graph. Thanks :)

@laurisskraucis2247 8 жыл бұрын

Amazing stuff mate, thanks for helping others out. Have a great day!

@BK-dr3px Ай бұрын

You explained this way better than my college textbook did. Thank you!

@MichaelOnRockyTop 7 жыл бұрын

You are better than any professor Ive ever had. Im majoring in this stuff and you are a tremendous help. Thank you so much.

@rodrigodiaslima1_yt 5 жыл бұрын

Preston, congratulations for the amazing job for help so many people around and thank you very much

@desertfox9613 5 жыл бұрын

I've learned so much from your videos. You can seriously charge for this

@biggim3265 Жыл бұрын

Thank you so much. I wished this was part of the school curriculum. You really have a great way of explaining this. I came across you by chance because the UK government got into a terrible financial crisis which I wanted to understand fully. Got this in one, you are a brilliant teacher. Fantastic value ! I subscribed and hope you keep going 👍

@mohd.sufianbinhassan5623 Жыл бұрын

OK after so many videos I watched on bonds, I finally get a clearer picture of why investors buy bonds. (appreciation + coupon)

@mensanmichelkinvi4304 7 жыл бұрын

Mr Preston, Thanks fot your good job. I have a question. As the bank hasn't yet sold the bonds but was willing to facilitate the loan, from what source does the bank collect the Money to facilitate the loan?

@gauravkandal 9 жыл бұрын

Hey preston thanks for such lovely information !! Please tell me how u calculated value of the bond from $1000 to $1,418 ?

@abenezerk4984 11 жыл бұрын

Thank You so very much for empowering us with knowledge. give a man a fish he will eat for a day teach a man how to eat he will eat for a life time. Very greatfull for teaching us and you are a fantastic teacher. Thank You.

@ohduana6746 5 жыл бұрын

Thanks you so much, Preston! I had to write a report on the debt structure of Denver International Airport and had no idea what a bond was, haha.

@mroxo77 11 жыл бұрын

I wish I could buy you a drink Mr. Preston, you are Gods gift, thank you ever so much for the knowledge you are passing on to us. God Bless you

@jasongore4190 5 жыл бұрын

Very informative. Really enjoying it so far, 6 years on :)

@rodrigodiaslima1_yt 5 жыл бұрын

It is amazing how can we find great and helpful content for free nowadays

@anilt3275 9 жыл бұрын

Hi Preston, Thank you so much for sharing valuable information. I am gonna watch all the series of these videos. I think there are some lessons missing like 3, 7 etc. Could you please provide me the link of these missing lessons. God bless you :)

@JonnyBeoulve 8 жыл бұрын

Thank you very much for this. I was confused when reading from the book and this cleared the basics up.

@Lightbringer.528 8 жыл бұрын

+Jonathan Leack what book? if you could let me know that would be great!

@KingJamesVL 8 жыл бұрын

Preston, you are a lifesaver. Investing has always been a confusing topic for me but with your help, I am finally understanding. Please keep up the great work? How can I show some support to your page?

@MichaelOnRockyTop 7 жыл бұрын

Go away you spamming troll

@rubenscpersonal 7 жыл бұрын

First of all thanks for the amazing videos. Now one question. in 2017 we have overvalued stocks and low interest bonds. What is the value investing approach in this scenario?

@alexandermyrie7934 10 жыл бұрын

Excellent video. Very insightful and good use of examples and analogies. What's the name of the instrumental at the start and at the end?

@ishannarula3443 7 жыл бұрын

Thank you sir ... you motivated me from day 1st .. simple and easy the best way of explaining

@sequetuquieres2048 3 жыл бұрын

Finally, someone who knows how to explain the complete context of what a bond is without diving into calculations immediately.

@richardnavaltv2794 5 жыл бұрын

sir we have a bond from my grandfather,, we do not know how to use this, and where to exchange.. can u give me info. or answer? thank u.

@93292 6 жыл бұрын

Thank you for your explanation! It makes much more sense

@vincentmaldon7707 2 жыл бұрын

You are the best. Glad I found you.

@NutPae 11 жыл бұрын

amazing video! was confusing about bond, but your video helped me out after all.

@kintin7264 3 жыл бұрын

thanks this is awesome explanation can you also introduce what is yield vs bond ?

@altargirl89 11 жыл бұрын

We need more people in the world like preston psych! These videos are totally awesome

@klppdc 8 жыл бұрын

Great investing lessons. Keep them coming.

@Ksp8197 9 жыл бұрын

Hey Preston, Im an ardent watcher of your incredible videos. I wanted to get some clarification on something you said about risk associated with bonds. point 2 states that interest rates change, however you only list the positive of it i.e. if you buy bond at 5% interest and a year later its 4%, you are still at an advantage - would the risk then be if you buy bond at 5% interest and then a year later its at 6%- so you'd be at a disadvantage? Thats my guess and what would seem logical, but would be super grateful if you can clarify. Once again, your videos have been such a pleasure watching!

@AdrianButler86 4 жыл бұрын

@Jing Li disadvantaged if ur plan was to sell it alomg the way and get out of it and just be happy u got some interest and now wanna free up ur money again. You still are winning if u hold it till maturity becuase u still gettin ur 5% all the way till it matures n u given ur $1000 back. Lemme kmow if this is all correct as i am just learning all this stuff. Thanks

@leadership_nugget 6 жыл бұрын

thanks for this- really really helped to understand it better!

@dt5487 9 жыл бұрын

You are amazing. THANK YOU FOR THIS!

@khsimagesdotcom856 3 жыл бұрын

Thank you for this masterful explanation! What do I do now when interest rates are very low and stock prices are high? Do I buy bonds in case interest rates go negative, search for undervalued stocks, switch to an entirely different asset class or wait for a more favorable investing environment? If the answer is to wait, then what form should my capital take?

@CookingDelight 4 жыл бұрын

You are an amazing teacher!

@dinaalmonord9117 4 жыл бұрын

Thank you so much for the clear explanation!

@scratchy3861 7 жыл бұрын

great videos these i cant stop watching.

@kosmonautofficial296 6 жыл бұрын

amazing video thank you so much for explaining this so well

@davidharford3873 7 жыл бұрын

So it is basically like a term investment (except you can sell the bond at any time??) with the bank. But the bond is held with a business/government and not directly the bank.

@marcosrafael7929 7 жыл бұрын

Thank you Preston, you are very clear and I finally got the idea of that term.

@cosmicbandido8186 2 жыл бұрын

@Preston when I buy a 10 year bond at a given date and interest rate is 2% at that point. Do I get the whole 10years that 2 % ( is it fix ) or does it change when interest rate change?

@missLinett 3 жыл бұрын

Hello Preston, I'm studying macro atm and I'm just a bit curious about bonds. If I eg. purchase a bond before the interest rate goes down, the value of the bond increase. Does it affect my bond as well if choose to keep it? Or only for people that actually sell their bonds to the market (for a higher value)?

@aakashsachdev5129 9 жыл бұрын

Great explanation - your video the whole concept of bonds into perspective; from corporations to governments. Cheers

@Rafa0Blues 9 жыл бұрын

Hi Preston, great channel man thanks for the great videos. I have a question: why the goverment drop the interest rate of the bonds when they try to stimulate the economy? Thanks man

@rkshettyster 8 жыл бұрын

Hey can I know how do you get an Average Industry PE ratio?

@luispablo1988 9 жыл бұрын

Thanks man! really clear some doubts there!

@BlasianPersuazion 9 жыл бұрын

You explained this very well! I'm going to share your channel! *two thumbs up*

@mazenalsharekh3125 7 жыл бұрын

That was brilliant man!!

@flypimpinogflypimp2126 2 жыл бұрын

You do a very good job explaining things and putting a slideshow up as you explaining i best learn through example so this is perfect very good video. New subscriber here I just came across your channel

@stephenhart494 7 жыл бұрын

looking for clarification here. You said as bond prices go up typically stock prices go down and vice versa. but as the stock prices go up the bond yields go up, correct?

@AC-wl7ve 9 жыл бұрын

thanks, great video! but i am kind of confused where you came up with the bond being worth $1418. so someone pays you 1418 for that bond, but only receives 5% of the $1000? therefore losing $318?

@poleinthehole7404 6 жыл бұрын

Preston God bless u and your family Many thanks

@hunterhazelwood3435 9 жыл бұрын

this is a super awsome vid, your doing great. unfortunately i dont undersand the last part on bond value ughhh.

@thanasu 11 жыл бұрын

To calculate bond price, you have to know about present value which is F=P(1+i)^n. Follow this one, use k = 2.83% I=$50 n=28 years. 1. Interest rate; P= I(1-(1+k)^-n)/k this formula is shorten one which derives from P=I/(1+k)^1+I/(1+k)^2+...+I/(1+k)^28 which gain 958 2. Inflation with par value, which bring par value to become devalue than 1000 P=F/(1+k)^n = 1000/(1+0.0283)^28 = 457 3.result = 958+477 = 1415

@truckersagainsttrafficking7550 4 жыл бұрын

What a superb job! I watched a few other videos and was so clueless still. Many do you have more??

@totetronico 6 жыл бұрын

Very very well done video!

@pantasticodeniro9874 3 жыл бұрын

Thanks for the video! But I'm very confused with 17:55. How did you arrive to those numbers? Thanks! :)

@derrickhoe9886 11 жыл бұрын

Thanks so much for the information, really what i need to get started!!! Thanks for giving!!!

@hughjanus768 8 жыл бұрын

is the coupon rate associated with interest rates?

@kiyaheza7485 4 жыл бұрын

Great Channel to build your financial education!!

@sidmoitra007 8 жыл бұрын

Thanks a lot for making these vids. I invest in Indian mkts and now I believe to use these rules... :)

@naranjoraymond6266 9 жыл бұрын

thank you for sharing all of us this sir,god bless

@gunalansanthi7080 5 жыл бұрын

will this apply for all the countries?

@yarpen26 7 жыл бұрын

What I'd like to know is where the $1,418 bond price came from. I mean, it should only depend on how much someone would be willing to pay for it, right? So it might be that or it might be any other amount higher than 1,000, is that correct?

@heinrichvanrooi175 3 жыл бұрын

How do you calculate this on HP 10bII

@jubatimes424 Жыл бұрын

I find this video very easy to understand

@bmanq2234 5 жыл бұрын

Amazing video! Thank you!

@ednakazuya12 7 жыл бұрын

at 17:05 so the 5% will be at a fixed rate compared when it drops to %2.83?

@anthonymchiles 11 жыл бұрын

Question: when Jacks company makes the coupon payments, is he making the payment of 5% on the full 500,000 bonds? I was confused on that.

@konstruktivnikritikaodkons1496 3 жыл бұрын

Really nice explenation ! Thanks

@alexandermyrie7934 9 жыл бұрын

What's the name of the instrumental?

@jeetendratiwary 6 жыл бұрын

when you compare return on djia with the help of pe ratio vs govt bond yield we know which one is a better investment but what happens when DJIA return is 4.1% 30 year govt bond yield is 3.13% ( so stock is still a better choice) but DJIA div yield is 2.19%...does major index divend yield plays a role in choosing which one should be a better investment? or how bigger role major index div yield plays in terms of selecting which side one should be? many thanks.

@jeetendratiwary 6 жыл бұрын

Hi Preston, i am awaiting your reply...your lessons has been a great help..this can bring some clarity to my confusion...please reply, thanks

@cmt6 7 жыл бұрын

Thanks for the great wealth of information..Even your books are also good. Highly recommended cheers.

@elvisdun8588 12 жыл бұрын

Wow!!!! This is amazing...

@dinasallam2019 8 жыл бұрын

Thank you, in 17:22, i just need to know how do you get the price of 5% bond to be 1418. what is the calculations behind that?, Thanks

@JH-ez5pf 8 жыл бұрын

+Dina Sallam Heyy, I'm no expert so don't quote me on this. I realise the reply is a little late, but it may be helpful to others (if correct) [if I get this wrong, someone please correct me]. A simple formula for bond price is: ((C/r) * (1- 1/([1+r]^t))) + p/([1+r]^t) Where: C = coupon paid (semi-annual) r = interest rate (semi-annual) t = time (semi-annual) p = par value ~ a quick google of this will lay it out in a much nicer way than I have :) In the above example we want to use the existing elements of the bond, with the new interest rate, to determine what the price of the bond will be. C = 5% coupon rate * 1000 par value / 2 since we want the semi-annual amount, which is 25. r = 0.0283 / 2 = 0.01415 t = originally would have bbeen 30 * 2 = 60, however we're looking at it 2 years later, so it's 28 * 2 = 56 p = 1000 still ~ then we put the values into the formula (may get messy here): ((25/0.01415) * (1-1/[1.01415]^56)) + 1000/[1.01415]^56 = (1766.78 * 0.5447) + 455.278 = 962.367 + 455.278 = 1417.6454 (with small rounding errors) ~Great video Preston Pysh :)

@GentleLadiesS 7 жыл бұрын

thank you!!!!

@Jeauku 7 жыл бұрын

Joshua Holt the t=56 doesnt make sense

@jwai.c4177 7 жыл бұрын

Jeauku 30 (30 years maturity) -2 (2 years later) = 28 Then 28*2 = 56

@fahadmatt7348 7 жыл бұрын

wallah I got the same question

@KJsiriusK 9 жыл бұрын

Thanks for the great information.

@tiotigeorge4794 3 жыл бұрын

Informative video...keep it up

@daisydd1709 5 жыл бұрын

how to invest in bonds in negative/zero interest rates environment.... go for high yield corporate bond?

@jitakshgupta9529 6 жыл бұрын

Does compounding happens in the case of bond. 1 Bond rate = $ 1000 and 5% coupon Rate. At the end of year 1 it will be $1050. But my Question is.. In the 2nd year will the return of 5% coupon rate be on that $1050 value or the initial amount invested ($1000).

@imlkr_ 4 жыл бұрын

No compounding doesn't happen in the case of bonds.. the coupon rate is applied on the original investment and not on the interest earned every year!

@AbleAbeStudios 9 жыл бұрын

Great lesson, I think I'm getting it ...GO!!!

@yestayzeinollauly1804 7 жыл бұрын

at 17:50, "therefore the price of 5% bond is now worth: $1,418 ". Could you explain, please, how did you calculate that? thanks

@JH-ez5pf 7 жыл бұрын

Yestay Zeinollauly I can't physically copy and paste my original comment right now, but find my reply to Dina Sallams comment - that'll Explain it! :)

@maxbottaro1 11 жыл бұрын

1 more question- how are you getting to the $1418 value at the end of the video, is that just an arbitrary market price based on what people are willing to buy it for, or is it specifically based on the yield % (e.g. 5% is 43% higher than 2.83, therfore the par value is approx 43% higher @ $1,430 than the $1,000 par priceyou pad before?)

@aguzman11189 11 жыл бұрын

This is awesome! :)

@nelsonrenuk6715 3 жыл бұрын

So I bought some bond back in 2005 for my kids. Some of them I cash it out after a year. The rest I keep moving places to place I lost all off them. How can I claim them