Price, Premium, Discount, and Par

Price, premium, discount, and par concepts explain how a bond’s market price compares with its face value and why that relationship matters for yield and redemption analysis.

Bond Prices at Par, Premium, or Discount defines above-par, below-par, premium-bond, discount-bond, bond-premium, and bond-discount usage in one comparison. The article also explains quote conversion, clean versus settlement price, calls, credit risk, and the limits of pull to par.

Deep Discount and Amortized Premium or Discount covers more specialized deep-discount structures and accounting or tax balances. Market price, issue price, carrying value, and tax basis are not interchangeable.

Example

A bond with $1,000 face value quoted at 96 has a clean price of about $960 before accrued interest and transaction costs. A quote of 104 implies about $1,040 on the same basis. The investor still needs coupon, maturity, call, credit, liquidity, tax, and yield information before comparing the securities.

Common Mistakes

• Calling a discounted bond cheap without checking credit risk, maturity, coupon, and liquidity.
• Ignoring that premium bonds may be called before the investor earns the expected yield.
• Confusing price as a percentage of par with the actual settlement amount.
• Treating accounting amortization as the same thing as market value.

In this section

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