Market rate of bonds
Calculate the market value of a bond by comparing interest rates.
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The market price of a bond is determined using the current interest rate compared to the interest rate stated on the bond. The market price of the bond comprises two parts. The first part is the present value of the bond's face value. The second part is the present value of the bond's interest payments. As an example, there is a $100, 000 bond that pays interest semi-annually. The stated interest rate is 8 percent. The current market interest rate is 10 percent. The bond matures in five years.
1. Determine the interest payments by multiplying the interest rate per interest payment by the face value of the bond. In the example given, the interest rate per payment is 4 percent. This is half of the stated interest rate because the bond pays interest two times per year. Thus, 4 percent times $100, 000 equals $4, 000.
2. Determine the present value of an annuity factor for the interest payments. Use the present value of an annuity table. In the example, the term is 10, because the maturity is five years and the bond pays interest semi-annually. The interest rate is 5 percent, which is half of the current market rate, because the interest pays semi-annually. Using these figures, the present value of an annuity factor is 7.7217.
3. Multiply the interest payment by the present value of an annuity factor determined in Step 2. This is the present value of the interest payments. In the example, $4, 000 times 7.7217 equals $30, 886.80.
4. Determine the present value of $1 factor. Use the present value of a $1 table. In the example, the term is 10, because the maturity is five years and the bond pays interest semi-annually. The interest rate is 5 percent, which is half of the current market rate because the interest pays semi-annually. Using these figures, the present value of an annuity factor is 0.6139.
5. Multiply the face value of the bond by the present value of $1 factor determined in Step 4. In the example, $100, 000 times 0.6139 equals $61, 390.
6. Add the present value of the interest payments, determined in Step 3, to the present value of the bond's face value, determined in Step 5. In the example, $30, 886.80 plus $61, 390 equals a bond market price of $92, 276.80.where is the largest shopping mall in south america google shopping how to set up how much should i offer on a house how to know if a shopping website is legit how does the alexa shopping list work how to get the white shopping bag app icon how to check online shopping site how to get rid of pinterest shopping list what is undercover shopping centre how to send alexa shopping list to phone what is a shopping good how to get to bluewater shopping centre how much shopping is done online when is late night shopping portsmouth how to save money for a shopping spree who owns telford shopping centre how to compare price online shopping what does it mean when a stray cat comes to your house what is idea based shopping what are searches when buying a house how to cut shopping bills uk why is online shopping convenient how to protect your shopping trolley from improvised explosives what is the cheapest online food shopping what is the scientific name for the study of shopping how to stop shopping online addiction which supermarket has the best online shopping how to make cloth shopping bags how to go grocery shopping what is semi detached house how to fix a shopping addiction how to draw a shopping cart which is best online shopping sites in india how to make shopping cart in blogger where is my google shopping list house of gucci where to watch uk where to go bra shopping who owns aberafan shopping centre what factors should you consider when shopping for credit who benefits from online shopping what is spain famous for shopping