discount bond
A discount bond is a bond that is issued for less than its par—or face—value. Discount bonds may also be a bond currently trading for less than its face value in the secondary market. A bond is considered a deep-discount bond if it is sold at a significantly lower price than par value, usually at 20% or more.

What determines the value of bonds to investors?

The three primary influences on bond pricing on the open market are supply and demand, term to maturity, and credit quality. Bonds that are priced lower have higher yields. Investors should also be aware of the impact that a call feature has on bond prices.

Can bonds decrease in value?

Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up. Inflation can also erode the returns on bonds, as well as taxes or regulatory changes.

How is the face value of a bond different from its price?

Face value, also known as par value, is equal to a bond’s price when it is first issued, but thereafter the price of the bond fluctuates in the market in accordance with changes in interest rates while the face value remains fixed. The various terms surrounding bond prices and yields can be confusing to the average investor.

What does it mean when a bond is trading above par value?

However, the bond’s yield, which is the interest amount relative to the bond’s current market price, fluctuates with the price. As the bond’s price varies, the price is described relative to the original par value, or face value; the bond is referred to as trading above par value or below par value.

What’s the market value of a corporate bond?

Corporate bond prices trade as a percentage of face value, so a price of 125 means that the bond is valued at a 25% premium to its $1,000 face value. No bond traded at or above 150, showing that bonds can only rise so much in price — a key difference to how stock market investments trade.

What makes a bond sell for in the secondary market?

(Select the best answer​ below.) The price a bond sells for in the secondary market depends on interest rate movements and other factors. The price a bond sells for in the primary market depends on coupon rate movements and other factors. Investors sell bonds to brokers through the primary market before the bonds reach maturity.