Consider a 1000 Par Value 10 Year Bond With 5% Semiannual Coupons This Bond Can Be Redeemed for

How does this bail price computer work?

This fiscal calculator approximates the selling toll of a bond by because these variables that should exist provided:

• Face/par value which is the amount of money the bail holder expects to receive from the issuer at the maturity appointment as agreed.

• Coupon rate is the annual rate of render the bond generates expressed equally a percentage from the bond's par value.

• Coupon rate compounding frequency that can exist Annually, Semi-annually, Quarterly si Monthly.

• Market involvement rate represents the render rate similar bonds sold on the market place can generate. This figure is used to come across whether the bond should be sold at a premium, a discount or at its face up valueas explained below.

The algorithm behind this bond price reckoner is based on the formula explained in the post-obit rows:

Where:

F = Face/par value

c = Coupon rate

n = Coupon rate compounding freq. (n = 1 for Annually, 2 for Semiannually, 4 for Quarterly or 12 for Monthly)

r = Market place interest rate

t = No. of years until maturity

After the bail price is determined the tool besides checks how the bail should sell in comparison to the other similar bonds on the market by these rules:

• IF c = r so the bail should be selling at par value.

• IF c <> r AND Bond price > F and then the bond should be selling at a premium.

• IF c <> r AND Bond toll < F then the bond should be selling at a disbelieve.

Example of a result

Let'southward assume that someone holds for a menses of 10 years a bail with a face value of $100,000, with a coupon charge per unit of 7% compounded semi-annually, while similar bonds on the market offer a rate of return of 6.5%. Let'south figure out its correct price in instance the holder would like to sell it:

■ Bail cost = $103,634.84

■ Considering that the bond price is higher than the par value the bond should be selling at a premium.

What is a bond?

In finance bonds are often referred to as fixed-income securities as they are a blazon of investment in which the holder (usually called equally the investor) lends money to a bond issuer (usually governmental e.one thousand: foreign governments, municipalities, states or corporate organizations) for a specific menstruum of time while the borrower understands to pay to the investor a fixed interest rate, compounded past the dominion negotiated and paid within sure terms. Usually bonds are issued to help such entities finance big or public projects such as utilities, infrastructure, research and development health related.

Examples of categories of bonds are:

• Municipal bonds;

• U.Southward. treasury bonds;

• U.S. bills;

• U.Southward. notes;

• Corporate bonds;

• Foreign bonds issued past states/governments.

01 Mar, 2015

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Source: https://www.thecalculator.co/finance/Bond-Price-Calculator-606.html

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