Present value approach

# Present value - Present value approach Below is the formula for calculating a bond's price which uses the basic present value(PV formula for a

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Present value approach Below is the formula for calculating a bond's price, which uses the basic present value (PV) formula for a given discount rate: [1] (This formula assumes that a coupon payment has just been made; see below for adjustments on other dates.) F = face value i F = contractual interest rate C = F * i F = coupon payment (periodic interest payment) N = number of payments i = market interest rate, or required yield M = value at maturity, usually equals face value P = market price of bond If the market price of bond is less than its face value (par value), bond is selling at a discount . Conversely, if the market price of bond is greater than its face value, bond is selling at a premium . [2] 8 Bonds Valuation Bonds are long-term debt securities that are issued by corporations and government entities. Purchasers of bonds receive periodic interest payments, called coupon payments, until maturity at which time they receive the face value of the bond and the last coupon payment. Most bonds pay interest semiannually. The Bond Indenture or Loan Contract specifies the features of the bond issue. The following terms are used to describe bonds.

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## This note was uploaded on 01/22/2012 for the course 3131 3462 taught by Professor Camus during the Spring '11 term at Central Luzon State University.

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Present value - Present value approach Below is the formula for calculating a bond's price which uses the basic present value(PV formula for a

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