What's a par bond?

Quantitative Finance Level 1

If a bond is selling for par, what does that imply about the discount rate r r and coupon rate c c ?

Assume that these rates are constant over the life of the bond.

r = c r = c r > c r > c No implications r < c r < c

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Calvin Lin by Calvin Lin

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1 solution

Calvin Lin Staff
Feb 10, 2015

When something is trading at par, it means it is trading "at it's value". In the case of a bond, this implies that the price of the bond is equal to the principal value of the bond.

Hence, the coupon payments of the bond must exactly offset the discounting rate. In other words, c = r c = r .

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