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 971/4 translates into:

     97.25% x $1,000 = $ 972.50

How to Pass the Series 62 Exam

Bond Pricing

Related Articles
  1. Investing

    Corporate Bond Basics: Learn to Invest

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

    How Interest Rates Impact Bond Values

    The relationship between interest rates and bond prices can seem complicated. Here's how it works.
  3. 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.
  4. Investing

    Six biggest bond risks

    Bonds can be a great tool to generate income, but investors need to be aware of the pitfalls and risks of holding corporate and/or government securities.
  5. Investing

    6 Ways That Investors Use Bonds

    Learn how the stodgy stereotype of bonds can overshadow the basic and advanced uses of what these investments can do for your portfolio.
  6. Managing Wealth

    How Bond Prices and Yields Work

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

    Corporate Bonds for Retirement Accounts

    Corporate bonds are usually the preferred choice in retirement accounts. Here are some of the benefits of corporate bonds, and strategies for a portfolio.
  8. Investing

    Why Companies Issue Bonds

    When companies need to raise money, issuing bonds is one way to do it. A bond functions as a loan between an investor and a corporation.
  9. Investing

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
Frequently Asked Questions
  1. What Licenses Do Financial Advisors Need to Have?

    Understand why all financial advisors are required to be licensed, and identify the specific licenses that must be obtained ...
  2. When Is Managerial Accounting Appropriate?

    Understand the difference between managerial accounting and financial accounting. Learn common scenarios in which managerial ...
  3. Do ETFs Generate Capital Gains for Shareholders?

    Learn how exchange-traded funds (ETFs) can generate taxable capital gains for shareholders due to occasional and substantial ...
  4. Why is there a negative correlation between quantity demanded and price?

    Learn what the law of demand is, the basic assumption of the law of demand and why there is a negative correlation between ...
Trading Center