How are bonds priced?

When purchasing a bond in the secondary market, an investor will typically pay a price either below or above the bond’s par value.  Even though bonds are purchased and sold in $1,000 increments, bonds are quoted and traded based upon a par price of $100.00.

If an investor buys a bond and plans to hold it until its maturity date, changing market prices, interest rates and yields typically do not affect them.

When purchasing or selling a bond the market price will be influenced by prevailing interest rates, current and expectant inflation rates, the bond’s credit rating and the length of time to the bond’s maturity.

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