Final answer:
Bond prices are quoted as a percent of par value. The price varies based on interest rates, coupon rate, credit quality, and maturity date, inversely related to market interest rate movements.
Step-by-step explanation:
Bond prices are typically quoted in terms of percent of par value. The par value, also known as the face value, is the amount that will be paid back to the bondholder at maturity.
The price of a bond fluctuates in the market based on current interest rates, the bond's coupon rate, its credit quality, and its maturity date.
When interest rates rise, the value of existing bonds falls, as newer issues come with higher coupon rates that are more attractive to investors. Conversely, when interest rates fall, the value of existing bonds with higher coupon rates rises.
For example, a bond with a par value of $1,000 and a quoted price of 95 is actually priced at $950. This is because it is quoted at 95% of its $1,000 face value.
Bond investors must understand how changes in market interest rates affect the value of fixed-income securities to make informed investment decisions.