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“At par” refers to a bond selling for its face value, providing insight into market interest rate predictions. Bonds promise a fixed amount of interest and face value payment, with pricing based on present value and risk. Premium bonds have higher interest rates, while discount bonds have lower rates.
“At par” is a financial term that describes the price level of a bond. A bond that sells at par sells for its face value. Bond pricing provides information about investors’ expectations of market interest rates. Bonds selling at par, at a premium, and at a discount reveal the market‘s predictions of interest rates.
A bond, also commonly known as a note, is a promise to pay a certain amount of money to the bondholder after a designated time. The issuing entity pays the holder a fixed amount of interest each period throughout the life of the bond. At the end of the bond’s life, the holder receives an amount specified in the bond; This is typically $1,000 United States Dollars (USD) for bonds issued in the United States. Bonds are issued by corporations and governments, and the value of the bond depends in part on the credibility of the agency that issued it.
The face value of a bond is the amount paid at the end of the bond’s life. Also called the face value of the bond. The interest payments the holder receives are called bond coupons, and are described by the interest rate they represent.
For example, a bond might have a coupon of 7 percent. If it is a $1,000 bond with semi-annual coupons, the holder receives 3.5 percent, or $350, every six months. The price of a bond is the present value of the payment stream that the bond promises, adjusting for default risk and other uncertainties.
Bonds are divided into classes based on their price levels. A bond priced above its face value sells “at a premium,” and is called a premium bond. If the price of a bond is less than its face value, then it is a discount bond. Bonds that sell for a price equal to their face value are sold “at par.”
The price of the bond depends on the present value of the face value and the coupon payments. If the bond is selling at par, then the promised interest rate on the bond is equal to market expectations of the real interest rate. Therefore, the investor is indifferent between having $1,000 today and having $1,000 in the future plus interest payments. Premium bonds have interest rates that are higher than the anticipated market rate, while discount bonds have lower interest rates.
Smart Asset.
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