BOND CASH PRICE Meaning and
Definition
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Bond cash price refers to the actual amount of money at which a bond is bought or sold in the market. It represents the total cash value that an investor pays in order to purchase a bond or the amount they receive when selling a bond. The bond cash price encompasses the face value of the bond as well as any accrued interest.
When a bond is issued, it has a fixed face value, also known as the par value or nominal value, which represents the principal amount that will be repaid to the bondholder at maturity. However, the bond may be bought or sold in the secondary market before it reaches maturity. In these cases, its cash price will vary from its face value due to market conditions and changes in interest rates.
The bond cash price takes into account the time period from the last interest payment date to the date of the transaction. This period is referred to as accrued interest, and it represents the interest income that has accumulated since the last coupon payment. The bond cash price adds the accrued interest to the face value to determine the total cash amount to be paid by the buyer or received by the seller.
Investors and bond traders closely monitor the bond cash price as it reflects the market demand for bonds and prevailing interest rates. It is an important factor in determining the yield-to-maturity, which represents the total return an investor can expect to earn if they hold the bond until maturity.
