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Anyone have a good explanation of why bond

Originally posted by: crazySOB297
Originally posted by: mcmilljb
I think you have it wrong.

http://en.wikipedia.org/wiki/Bond_(finance)
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http://www.econlib.org/Library...ics/Details/bonds.html
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Are you dyslexic? Your own link proves you wrong:

In addition to repaying the principal, or original amount borrowed, the borrower usually pays interest to the lender. In economics, the interest is a payment for the service of having the money or resources in advance.
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Borrower: "Hey, can I borrow some money? I'll give it back plus interested after a little while."
Lender: "Sure, I'll loan you some money, lets put it in writing so we don't forget the terms."
Borrower: "Great, here's a piece of paper stating I borrowed $100 from you today, and I'll pay you back $105 in 6 months."

Make sense?
 
Originally posted by: Epic Fail
Originally posted by: crazySOB297
Anyone have a good explanation of why bond lenders are the ones that pay interest and borrows make interest?
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QFFail
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I am reading straight out of a macro text book right now.

"Borrowers are those who issue and sell bonds, for them interest is the return on the bonds. Lenders are those who buy bonds, for them interest is the cost per period of borrowing."
 
Originally posted by: crazySOB297
Originally posted by: Epic Fail
Originally posted by: crazySOB297
Anyone have a good explanation of why bond lenders are the ones that pay interest and borrows make interest?
Click to expand...

QFFail
Click to expand...

I am reading straight out of a macro text book right now.

"Borrowers are those who issue and sell bonds, for them interest is the return on the bonds. Lenders are those who buy bonds, for them interest is the cost per period of borrowing."
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A lender buys and a borrower issues? I think it's safe to say you have a typo.
 
Originally posted by: Born2bwire
Originally posted by: crazySOB297
Originally posted by: Epic Fail
Originally posted by: crazySOB297
Anyone have a good explanation of why bond lenders are the ones that pay interest and borrows make interest?
Click to expand...

QFFail
Click to expand...

I am reading straight out of a macro text book right now.

"Borrowers are those who issue and sell bonds, for them interest is the return on the bonds. Lenders are those who buy bonds, for them interest is the cost per period of borrowing."
Click to expand...

A lender buys and a borrower issues? I think it's safe to say you have a typo.
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No, that's correct. Let's say AMD sell corporate bond to investors.

AMD issues/sells the bond, and they are the borrower. The get money (from the sales of bond) upfront. But they will have to pay interest on that bond. That interest is the return on the bond, or what the bond promise to pay in the future.

Investor who buys bond are "lending money" to AMD for promise to be paid in the future. Not sure what that interest is the cost per period of borrowing thing. Maybe your textbook assume investor borrow money to buy bond, and the cost to them is that interest to borrow that money to buy bond.
 
Originally posted by: rchiu
Originally posted by: Born2bwire
Originally posted by: crazySOB297
Originally posted by: Epic Fail
Originally posted by: crazySOB297
Anyone have a good explanation of why bond lenders are the ones that pay interest and borrows make interest?
Click to expand...

QFFail
Click to expand...

I am reading straight out of a macro text book right now.

"Borrowers are those who issue and sell bonds, for them interest is the return on the bonds. Lenders are those who buy bonds, for them interest is the cost per period of borrowing."
Click to expand...

A lender buys and a borrower issues? I think it's safe to say you have a typo.
Click to expand...

No, that's correct. Let's say AMD sell corporate bond to investors.

AMD issues/sells the bond, and they are the borrower. The get money (from the sales of bond) upfront. But they will have to pay interest on that bond. That interest is the return on the bond, or what the bond promise to pay in the future.

Investor who buys bond are "lending money" to AMD for promise to be paid in the future. Not sure what that interest is the cost per period of borrowing thing. Maybe your textbook assume investor borrow money to buy bond, and the cost to them is that interest to borrow that money to buy bond.
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Oh bonds, I was thinking loans. Didn't really read it, are we supposed to be doing that?
 
When some entity issues a bond, they're basically handing out a piece of paper saying 'Hey, we need $XX now, we'll pay X% per period'. Buyers (people who are holding money they don't plan spending for a while) give them the money, and collect interest each period. They receive the principle when the bond matures. This confused the hell out of me when I first learned it 😛
 
Originally posted by: Born2bwire

A lender buys and a borrower issues? I think it's safe to say you have a typo.
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typo? they intentionally did that so they'll have to issue a new edition next year.
 
Originally posted by: ElFenix
Originally posted by: Born2bwire

A lender buys and a borrower issues? I think it's safe to say you have a typo.
Click to expand...

typo? they intentionally did that so they'll have to issue a new edition next year.
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The lender buys the little paper that says we'll pay you x% each period for the amount of the principle. The borrower (ie, wants money), issues that little paper. That's how I think of it anyway. No typos 🙂
 
Originally posted by: crazySOB297
Originally posted by: Epic Fail
Originally posted by: crazySOB297
Anyone have a good explanation of why bond lenders are the ones that pay interest and borrows make interest?
Click to expand...

QFFail
Click to expand...

I am reading straight out of a macro text book right now.

"Borrowers are those who issue and sell bonds, for them interest is the return on the bonds. Lenders are those who buy bonds, for them interest is the cost per period of borrowing."
Click to expand...

I have degrees in Finance and Accounting, your textbook has a typo etc.

This is the corrected statement:

"Borrowers are those who issue and sell bonds, for them interest is the cost per period of borrowing. Lenders are those who buy bonds, for them interest is the return on the bonds."
Click to expand...

The other links (wiki & econlib) posted here confirm this.

Fern
 
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