A bond point is worth $10; it is a unit of measure for bond prices that is set at $10 and equivalent to 1% of the $100 face value (par value) of the bond. A price of 85 means that the bond is selling at 85% of its face value. In other words, the bond is said to be selling at “85” or 85 bond points. Practically, for a bond with $1,000 face value, this is equivalent to $850. On the other hand, a bond trading at 105 would be selling for $1050.
For a bond priced at 105 3/8, the bond’s cost will be:
Cost = [105 × $10] + [3/8 × $10] = 1050 + 3.75
Cost = $1053.75
Bond points are not like basis points: the former is a measure of bond prices while the latter denotes the smallest increment of change in the yield (yield to maturity) of a bond. Therefore, a bond trading at 7.5 basis would have a yield to maturity of 7.5% or 750 basis points.
