What is the meaning of Bond Price?

Bond Price refers to the Present Value of the Cash stream to be generated in the future by a bond.  Future cash flows are discounted to calculate this value. Thus, present values of all the possible coupon payments are added to the present value of par value at maturity.

The price of the bond is negatively correlated to its yield to maturity. Bonds are thus issued at coupon rates which are very close to the prevailing interest rates so that their sale can be near their face values.

When a trade is carried on by two parties many bonds are sold either by a public sale or via an exchange platform, the price is determined by the market. Latter is also dependent on the credit rating of that party as there is always a risk linked with the bond. Bonds with a low rating are known as junk bonds.

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