Once issued, corporate bonds trade in the secondary market between investors similar to the way equity securities do. The price of bonds in the secondary market depends on all of the following:

  • Rating
  • Interest rates
  • Term
  • Coupon rate
  • Type of bond
  • Issuer
  • Supply & demand
  • Other features i.e. Callable, convertible

Corporate bonds are always priced, as a percentage of par, and par value for all bonds is always $1,000, unless otherwise stated.

Par Value

Par value of a bond is equal to the amount that the investor has loaned to the issuer. The terms par value, face value and principal amount are synonymous and are always equal to $1,000.  The principal amount is the amount that will be received by the investor at maturity, regardless of the price the investor paid for the bond.  An investor who purchases a bond in the secondary market for $1,000 is said to have paid par for the bond.

Discount

In the secondary market, many different factors affect the price of the bond.  It is not at all unusual for an investor to purchase a bond at a price that is below the bond’s par value.  Anytime an investor buys a bond at a price that is below the par value, they are said to be buying the bond at a discount.

Premium

Often market conditions will cause the price of existing bonds to rise and make it attractive for the investors to purchase a bond at a price that is greater than its par value. Anytime an investor buys a bond at a price that exceeds its par value, the investor is said to have paid a premium.

Corporate Bond Pricing

All corporate bonds are priced as a percentage of par into fractions of a percent.  For example, a quote for a corporate bond reading 95 actually translates into:

95% x $1,000 = $ 950

A quote for a corporate bond of 97 1/4 translates into:

97.25% x $1,000 = $ 972.50

 



Bond Yields

Related Articles
  1. Investing

    Are Bonds Selling At A Premium A Good Investment?

    A bond with a par value – or face value -- of $1,000 is selling at a premium when its price exceeds par.
  2. Investing

    Understanding Bond Quotes

    A bond quote is a bond’s trading price.
  3. Investing

    What is Par Value?

    Par value is a term used for investments that means original value. It’s also called face value or nominal value.
  4. Investing

    Understanding Face Value

    Face value is the dollar value stated on a security.
  5. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  6. Managing Wealth

    How Bond Prices and Yields Work

    Understanding bond prices and yields can help any investor in any market.
  7. Investing

    Explaining Original Issue Discount

    An original issue discount is the amount below par at which a bond or other debt instrument is issued.
  8. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  9. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  10. Investing

    Top 6 Uses For Bonds

    We break down the stodgy stereotype to see what these investments can do for you.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center