Listen to a Business English Dialogue About Above par
Jeremy: Claire, have you heard the term “above par” in finance?
Claire: No, what does it mean?
Jeremy: It refers to a bond trading at a higher price than its face value.
Claire: Oh, so it’s like paying more than the bond’s original value?
Jeremy: Exactly, it happens when interest rates drop, and investors are willing to pay a premium for higher-yielding bonds.
Claire: I see. Does buying a bond above par affect its yield?
Jeremy: Yes, when you pay more for a bond, its yield decreases because you’re earning interest on a higher investment amount.
Claire: That makes sense. So, investors might buy above-par bonds for stability rather than high returns?
Jeremy: Yes, sometimes investors prioritize the security of a bond’s principal over maximizing yield.
Claire: Are there any risks associated with buying bonds above par?
Jeremy: One risk is that if interest rates rise, the value of the bond may decrease, resulting in a loss if sold before maturity.
Claire: Got it. It seems like there’s a lot to consider when investing in bonds.
Jeremy: Definitely, understanding factors like bond pricing can help investors make informed decisions.
Claire: Thanks for explaining, Jeremy. It’s helpful to learn about these concepts.
Jeremy: No problem, Claire. Finance can seem complex, but breaking it down makes it more understandable.