ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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may be higher or lower than the face value
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Is always the same as the face value
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Either A or B
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None of the above
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Detailed explanation-1: -Why Would You Pay More Than Face Value for a Bond? An investor might pay more than face value for a bond if the interest rate/yield they will receive on the bond is higher than the current rates offered in the bond market. In essence, the investor is paying more to receive higher returns.
Detailed explanation-2: -For example, if the face value is $1000 and the quoted market price is $990, then the bond price is quoted as 99. Similarly, if the market price is $1010, the bond is trading at a price of 101. When the bond price is higher than its face value, it’s described as trading at a premium to par.
Detailed explanation-3: -Similar to stocks, bond and CD prices can be higher or lower than the face value of the security because of the current economic environment and the financial health of the issuer.
Detailed explanation-4: -A bond quote is the last price at which a bond traded, expressed as a percentage of par value and converted to a point scale. Par value is generally set at 100, representing 100% of a bond’s face value of $1, 000. For example, if a corporate bond is quoted at 99, that means it is trading at 99% of face value.
Detailed explanation-5: -Compute the bond value by multiplying the percentage price quote by the bond’s par value. For example, if a bond is quoted at 110.0 and has a par value of $1, 000, the bond value is $1, 100.