The term "above par" is used to describe a bond that is trading at a price above its face value. For example, if a bond has a face value of $1,000 and is trading at a price of $1,100, it is said to be trading "above par." This means that the bond is trading at a premium, or at a price that is higher than what the bond is actually worth. This can happen for a number of reasons, including the fact that the bond is paying a higher interest rate than other bonds, or because the bond is considered to be a safe investment.
What are the 7 types of bonds?
1. Ionic bonds: Ionic bonds are formed when one atom transfers electrons to another atom. This creates a pair of ions with opposite charges. The force of attraction between the ions holds the molecules together.
2. Covalent bonds: Covalent bonds are formed when atoms share electrons. The force of attraction between the atoms holds the molecules together.
3. Metallic bonds: Metallic bonds are formed when atoms share electrons. The force of attraction between the atoms holds the molecules together.
4. Hydrogen bonds: Hydrogen bonds are formed when atoms share electrons. The force of attraction between the atoms holds the molecules together.
5. Van der Waals forces: Van der Waals forces are formed when atoms share electrons. The force of attraction between the atoms holds the molecules together.
6. London dispersion forces: London dispersion forces are formed when atoms share electrons. The force of attraction between the atoms holds the molecules together.
7. dipole-dipole interactions: Dipole-dipole interactions are formed when atoms share electrons. The force of attraction between the atoms holds the molecules together.
Why would a bond trade above par?
A bond may trade above par for a variety of reasons, but the most common reason is that the bond is paying a higher interest rate than the current market rate. This can happen when the bond is first issued, or when interest rates in the market have fallen since the bond was issued. In either case, the bond will trade at a premium, meaning that it will trade above its par value.
Another reason that a bond may trade above par is if the bond is callable, meaning that the issuer has the right to redeem the bond before it matures. This is typically done when interest rates have fallen, and the issuer can save money by calling the bond and issuing new debt at a lower interest rate. Investors are willing to pay a premium for a callable bond because they know they may be able to cash in the bond early and receive a higher yield than they would get from a non-callable bond.
Finally, a bond may trade above par if it is trading in a foreign market. In this case, the bond will be priced in the foreign currency, and the exchange rate will play a role in determining the bond's price. If the foreign currency is stronger than the currency in which the bond was issued, then the bond will trade at a premium. Is a bond trading above or below par? A bond is trading above par if its price is greater than $100, and it is trading below par if its price is less than $100. Is par same as principal? No, principal is not the same as par. Principal is the amount of money borrowed or invested, while par is the face value of a bond. The two terms are often confused because they are both used to describe the value of a bond.
What is above par and below par?
A bond's par value is its face value, or the value that appears on the bond itself. The term "par" is short for "par value." Above par means the bond is selling for more than its par value, while below par means the bond is selling for less than its par value.