The market price of a bond is the present value of all future interest and principal payments of the bond discounted at the bond's yield, or rate of return.
The market price of a bond may include the accrued interest since the last coupon date. Some bond markets include accrued interest in the trading price and others add it on explicitly after trading. The price including accrued interest is known as the "flat" or "dirty price". The price excluding accrued interest is sometimes known as the “clean price”.
Bonds are priced in terms of their percentage of par value. Bonds are not necessarily issued at par (100% of face value, corresponding to a price of 100), but all bond prices converge to par when they reach maturity. This is because if the prices do not converge, arbitrageurs can make risk-free profit by buying the bonds at a discount and collecting the face value at maturity. At other times, prices can either rise (bond is priced at greater than 100), which is called trading at a premium, or fall (bond is priced at less than 100), which is called trading at a discount.