Quotation Conventions 

If you have ever browsed the securities section of your favorite finance publication then you may have noticed that fixed income securities are often quoted in percentage points and fractions. Bond prices are quoted in this manner to allow investors to compare the relative value between bonds with different face values.

Bond prices are quoted as a percentage of their face value. The price of a bond that is trading at face value will be expressed as “100.” If a bond’s face value is $1,000 and its market value is $1,050, the bond will be quoted as “105.” In contrast, a bond with a $1,000 face value and a $920 market value will be quoted as “92.”

One percentage point of a bond’s face value is known as a point. It is important to understand that the value of a point is dependant upon the bond’s face value. A point is worth $10 when the bond has a $1,000 face value. A point is worth $50 if the bond has a $5,000 face value.

Remember that a point equals 1% of face value, not 1% of market value. If the price of a bond drops from 89 to 84, it has decreased by 5% of face value, but the percentage change in market value is -5.618%.

Bond prices are also quoted in fractions of a point. Fractions of a point are broken down into 1/32 increments. 32/32 = equals 1 point. If a bond’s price goes from 100 to 102 ½ one can interpret that its price has traded up two and a half points (+2 16/32). Again the dollar of each 1/32 of a point depends on the face value of the bond.

What is the price to be paid for ten $1,000 par bonds quoted at 101-03? The quote, “101-03” means that the bond is selling for 101-3/32 of par or:

101.0938($1,000)*10 = $10,109.38

Alternatively, a $1,000 par bond selling for 97-7 means that the bond is selling for 97-7/32 of par or:

$97.2188*10 = $972.19

Note: The price quotation conventions in this tutorial apply to all corporate and municipal bonds, and most agency bonds. Some treasury securities, particularly short-term T-bills, are quoted by yield, not price.

Practice Questions:

1.  If a bond has a face value of $5,000 what is the value of a point?

1. 25
2. 50
3. 5
4. 100

2.  If the price of a $10,000 par value bond decreases from 95 to 91, what is its percentage change in market value?

1. -14.21
2. -4.0
3. -4.21
4. -41.1

3.  What is the price to be paid for a $1,000 par bond quoted at 105-24?

1. $1,056.67
2. $105.67
3. $1057.50
4. $105.75

4.  What is the price of a $1,000 par bond quoted at 99 1/4?

1. $990.63
2. $99.25
3. $9,925.00
4. $992.50

5.  What is the price to be paid for 14 $5,000 par bonds quoted at 103 3/32?

1. $5,154.69
2. $7,216.56
3. $72,165.63
4. $50,154.69

Answers:

1.    B

2.    C

3.    C

4.    D

5.    C

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