Respuesta :
Bond valuation is a method for figuring out an individual bond's hypothetical fair value.
The bond value of today is $918.89
Bond price = CF/(1+r) + CF/(1+r)^2 + CF/(1+r)^3 + ....... + CF/(1+r)^n + F/(1+r)^n
F = $1000
CF = (6% of $1000) / 2 = $30
r = 8% annually = 4% semiannually
n = 5 years = 10 semiannual periods
Bond price = 30/1.04 + 30/(1.04)^2 + 30/(1.04)^3 + ...... + 30/(1.04)^10 + 1000/(1.04)^10 = $918.89
Hence, bond's value today = $918.89
What is Bond valuation?
- Bond valuation entails figuring out the face value or par value of the bond as well as the present value of the bond's future interest payments, sometimes referred to as its cash flow or future value.
- An investor uses bond valuation to calculate what rate of return is necessary for a bond investment to be profitable because the par value and interest payments on a bond are fixed.
- Finding a bond's theoretical fair value, also known as par value, is done through bond valuation.
- It entails figuring out the bond's face value as well as the present value of expected future coupon payments, often known as cash flow.
- Bond valuation aids investors in determining what rate to pay for a bond because the par value and interest payments are fixed.
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