Bond price is the price a dealer will pay to purchase a bond.
What is Bond Price?
- The calculation of a bond price is known as bond valuation. The theoretical fair value of a bond is the present value of the stream of cash flows it is anticipated to produce, just like with any securities or capital instrument.
- In order to determine a bond's value, prospective cash flows are discounted to the present using a suitable discount rate.
- If comparable instruments exist, this discount rate is frequently determined in practice by comparison.
- Then, at the specified price, a number of related yield measures are calculated. A bond is selling at a discount when its market price is lower than its face value (par value).
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