Bond Prices

Discipline: Economics

At issuance, bond prices depend mainly on the rating of bond, the rate of interest it bears, the maturity date, and whether any coupon payments are involved.

The prices of the bonds traded on the market, on the other hand, are determined by a present value calculation that involves the maturity date of the bond, the current market rate of interest, and whether the bond bears any future coupon payments.

If the current market rate of interest is higher than the stated rate of the bond, then the bond will sell at a discount. If the current market rate of interest is lower than the stated rate of the bond, however, the bond will sell at a premium.

Also see: bond, bond market, bond ratings

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