It's important to be familiar with a number of terms that apply to securities pricing.

  • Market Value: The current bid and ask prices for a security.
     
  • Bid: The price a market maker will pay for a security; it's the price an investor would receive if he or she sold the security.
     
  • Asked or Offering: This is the price an investor would pay when buying the security.
     
  • Net Asset Value (NAV): Refers to pricing of a mutual fund. It equals the total value of the fund's portfolio less liabilities and is calculated daily.
     
  • Par:  Par value is the stated value of a security. Par value is  most often used when referring to bond and preferred stock prices An investor who purchases a bond receives the par value upon maturity . See section below for more complete information.
Look Out
The par value of a bond is the amount the issuer agrees to
pay the investor when the bond matures. This is also known as the principal or the face amount. Bonds are usually sold in denominations of $1,000, which is equivalent to one bond. (There are a number of exceptions to this generalization, including many bonds issued by the U.S. government and by municipalities that trade in $5,000 or $10,000 increments. For the purposes of the Series 6 exam, however, assume that one bond is equal to $1,000 face value. An investor holding ten bonds would have an amount equal to $10,000 face value.)

Pricing
Keep in mind that the bond's market price may vary significantly from par. The bond may be worth more or less than its face amount, depending on the demand for it on the bond market. Bonds that are sold for less than their par value are purchased at a discount. Bonds that cost more than face value are said to be offered at a premium.

Bond prices are stated as a percentage of par value. For example, a bond with a price of 89 is selling at a discount equal to 89% of its par value, or $890. A bond with a price of 105 is selling at a premium equal to 105% of its par value, or $1,050. Each percentage increment in price is called a point. When a bond price moves from 94 to 98, it has increased four points.

Yield Terms

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