How can bond pricing be used by investors?

Bond pricing serves as a crucial tool for investors to evaluate investment risk, particularly in relation to prevailing market conditions. When investors assess the price of a bond, they glean insights into the bond's yield, which reflects both the issuer's creditworthiness and current interest rate trends.

If a bond is trading at a premium or discount, this can indicate changing perceptions of risk associated with the issuer. For instance, if market conditions signal a potential economic downturn, investors may perceive a higher risk of default and react by demanding higher yields, which conversely would lower the bond price.

Moreover, by analyzing the bond's pricing alongside factors such as credit ratings of the issuer, investors can make informed decisions on whether to buy, hold, or sell bonds. This analysis helps them gauge the overall risk associated with their investment portfolio, ensuring that they align their investment choices with their risk tolerance and market sentiment.

The other options do not accurately reflect the function of bond pricing. For example, standardizing loan terms focuses more on lending and borrowing agreements rather than bond investment. Determining corporate tax obligations and calculating depreciation rates are unrelated to the bond market and its pricing.