Par Rate and Deriving the Par Curve from the Spot Curve

A five-year bond is used in construction of a par curve. The price of the bond used is _most likely_ to be which of the following?

Incorrect. The market price of the bond will be the full price which includes accrued interest, but the flat price of the bond is used in the construction of a par curve.

Correct! The flat price of the bond is used for construction of a par curve. The bond's market price is the full price, which includes accrued interest. Therefore, the price used in construction of the par curve is most likely to be less than this market price.

Incorrect. The market price of the bond is the full price of the bond, and there's no reason that the price used for construction of the par curve should be larger than this.

The market price of the bond

Less than the market price of the bond

More than the market price of the bond