Market Value Of A Bond - University of Alberta
Market Value of Bond Example
? For a twenty-year $10,000 bond with a coupon rate of 5%, what is the
market value when the interest rate is 5.5% and ten years remaining?
? The market value of the bond is simply the present value of
the uniform series of remaining annuity amounts (5% of
$10,000, which is $500) plus the present value of the
principal repayment, using the market interest rate for the
discount rate.
10,500
$500
$500
Pbond
0 1 2 3 4 5 6 ... 10
0
n
? The principal repayment of the original amount at the end of the term is a future value, which is why we have to calculate its present value.
Pbond = 10,000(P|F,5.5%,10) + 500(P|A,5.5%,10)
? MG Lipsett, 2010
= $3,768.81 + 5,854.31 = $9,623.12
ENGM 401 & 620 ? Fundamentals of Engineering Finance,
1
Lecture 22: Interest Calculations (3)
1
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