Bonds price in secondary markets

An issued fixed income pays fixed rate of interest in form of coupon until it matures. But if it is sold in the secondary markets before maturity , its value is affected by the current market rates.
So there are 2 cases :

• When the coupon rate is less than current interest rate:
  In this case security will be sold at discount
• When the coupon rate is more that current interest rate
  In this case security will be sold at premium(i.e  at profit)

Bonds can be priced at a premium, discount, or at par. If the bond's price is higher than its par value, it would sell at a premium because its interest rate is higher than current prevailing rates. If the bond's price is lower than its par value, the bond would sell at a discount because its interest rate is lower than current prevailing interest rates. When you calculate the price of a bond, you are calculating the maximum price you would want to pay for the bond, given the bond's coupon rate in comparison to the average rate most investors are currently receiving in the bond market. Required yield or required rate of return is the interest rate that a security needs to offer in order to encourage investors to purchase it. So, usually the required yield on a bond is equal to or greater than the current prevailing interest rates.