The phrase "dollar price" is unique to the bond market. The dollar price of a bond is the price of a particular bond expressed as a percentage of the bond’s face value, also known as a percentage of par. As an example, a dollar price of 95 quoted for a specific bond would mean the seller or issuer of that bond is selling the bond at 95% of its face value, so that a buyer would pay $950 for each $1,000 of the bond’s face value. The yield of a bond is another way of quoting the dollar price.
A bond is a certificate denoting money that is essentially loaned to a company, municipality or the federal government by the purchaser of the bond for the amount, the face value, stated on the bond itself. Investors who hold bonds are basically lien-holders or creditors and their purchase of a bond entitles them to no share of ownership or proprietorship in the entity issuing the bond. In contrast, the purchaser of a share of a stock is considered a partial owner of the company issuing the stock. The most common types of bonds are: 1) Secured bonds: bonds backed by collateral that can be sold or negotiated. 2) Unsecured bonds: which are backed solely by the full faith and credit of the issuer. 3) Convertible bonds: whereby the bond holders have the right to turn in the bonds for other types of securities from the issuer under certain conditions.
Face value, or par, as the term is used in connection with the bond market, is the actual worth or value of a bond as it is proclaimed on the front of the bond certificate. Even though the cost of the particular bond may go up or down, the face value, or par, stays the same. The dollar price of a bond is the worth of a bond on the open market, regardless of its par value. The issuer of the bond is obligated to redeem a bond at par when the bond reaches maturity.
Most issuers and holders of a bond assume a yield to maturity where the bondholder will be paid the promised yield or dollar price at the maturity of the bond. Occasionally, the dollar price of a bond may be stated in dollar terms, but this is a misnomer; dollar terms are more properly stated in conjunction with foreign currency exchange while the dollar price is expressed strictly in terms of bonds.
