Final answer:
The price a dealer is willing to pay for a bond is known as the bid price, which is influenced by factors such as face value, coupon rate, maturity date, and prevailing market interest rates.
Step-by-step explanation:
The price at which a dealer will purchase a bond is referred to as the bid price. In financial terms, a bond is an "I owe you" note that an investor receives in exchange for capital (money). A bond's value is determined by several factors, including its face value, coupon rate, maturity date, and the prevailing market interest rates. The face value is the amount the borrower agrees to pay the investor at maturity, and the coupon rate is the interest rate paid by the bond, usually on a semi-annual basis. The present value of a bond is the most a buyer would be willing to pay for it, and this calculation takes into account the bond's face value, interest rate, maturity date, and market interest rates.
As market conditions and interest rates change, the attractiveness of a bond can vary. If interest rates rise, the bond's price may fall below face value to make it attractive to investors seeking the higher current rates. This interplay between market rates and bond prices is central to understanding the bid price.