Understanding Bond Pricing

Suppose your friend tells you that she recently purchased a 5-year $6,000.00 bond with a 5% coupon. A month later, she saw it quoted at 105.625, but she does not know what this means.

You can tell by the way the bond is priced that she has aU.S. Treasury or agency bond; otherwise it would have been priced . You explain that the market price of her bond is now , meaning it is now apremium bond.

Based on the market price of the bond you calculated, you can tell that market interest rates have gone since the bond was issued. The current yield of the bond is now .