The correct answer is C, $5.00. Corporate bonds are quoted as a percentage of par value, with par typically being $1,000. One “point” in bond pricing equals 1% of par value, which is $10.
Step-by-step:
1 point = 1% of $1,000 = $10
Therefore, ½ point = 0.5% of $1,000 = $5
This means that if a bond’s price increases by one-half point, the dollar value increase per bond is $5.
For example, if a bond moves from 100 (par) to 100.5, the price increases from $1,000 to $1,005. This confirms that a half-point change equals a $5 difference.
Choice A ($0.50) and Choice B ($1.00) are far too small and reflect misunderstandings of bond pricing conventions. Choice D ($50.00) would represent a 5-point move, not a half-point move.
Understanding how bond prices are quoted and converted into dollar amounts is a key concept in fixed-income markets tested on the SIE exam.
Thus, one-half point equals $5.00, making Answer C correct.
