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Bonds

The Basics

How are bond prices determined?

Bond price determination can be a very complex subject that extends beyond the scope of this publication. But in general, bond prices are determined by many variables, including: prevailing and expected interest rates; current interest rate policy; supply and demand for bonds; particular classes or types of bonds; liquidity; the quality of the credit; date of maturity; and tax status. It is important to note that newly issued bonds usually sell at or near their nominal face value, or principal value. But it is equally important to note that any bonds selling in the secondary markets may trade at different prices, given the demand for the particular bond, and may actually be sold at a premium (priced above its face value), or sold at a discount (priced below its face value).



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