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You can buy a bond that forces Tesla to repay you $1 in X years, for 89 cents. Bonds trading below value happen when there is uncertainty whether it can actual
by charlesdm 8y ago
You can buy a bond that forces Tesla to repay you $1 in X years, for 89 cents.
Bonds trading below value happen when there is uncertainty whether it can actually be repaid in the future by the company (e.g. maybe it is unsecured debt).
If repaid the yield would have been 5.3% per annum + the 11% difference it trades below value
- ljf 8y agoIs it not also that they will pay you a 5.3 percent dividend every year until repaid? Not that I really know much about this so likely wrong!
- smallnamespace 8y agoThe coupon (dividend) is 5.3% per year, and the bond repays in about 7 years, while trading at a 11% discount. As a first-order approximation, you can imagine that you are getting paid 5.3% + (11% / 7 years) = 6.87%. A slightly more accurate calculation shows that yield is actually closer to 7.36%. You can find the bond here: http://markets.businessinsider.com/bonds/tesla_incdl-notes_201717-25_regs-bond-2025-usu8810laa18 http://markets.businessinsider.com/bonds/tesla_incdl-notes_2...
- barbegal 8y agoYes Tesla's latest unsecured bonds have a coupon rate of 5.3% which they pay biannually. So for a bond with a face value of $1 they will pay you ~2.6 cents every 6 months.
- charlesdm 8y agoYes, they pay interest + will (hopefully) repay capital at the expiration date.