How to Calculate a Corporate Bond

Research Your Investments Carefully
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There are several yield calculations relevant to corporate bond pricing. Each one has a particular calculation relative to its use. While calculations to maturity can be derived on a spreadsheet, most yield calculations can be performed with online calculators.

Know that all corporate bonds assume the year is composed of 12 months with each month containing 30 days. Leap years are ignored. Calculate a corporate bond yield by using a simple spreadsheet program. In column 1, insert the par or maturity amount of the bond. In column 2 insert the coupon rate. Multiply the coupon rate by the par amount. The result is the annual interest to insert in column 3.

For each full month since the last coupon, or interest payment, add thirty days. Insert the date in column 4. For days in the current month use the current date. Insert in column 5. Add column 5 and 4 and input in column 6. This is total days elapsed. Divide by 360 and place this amount in column 7. Multiply column 6 and column 4. The result is the amount of current interest due, also known as accrued interest. Most corporate bonds pay interest semiannually.

Divide the coupon rate by the current market value. This is the current yield of the current bond. If the bond price is below par, the yield to maturity will be greater than the current yield. Premium bonds (bonds above par or 100) will yield less to maturity. This reflects the fact that at maturity there will be a capital loss from the premium price declining in value to par.

Calculate the yield to call for any premium bond. The call date is the date on which the bond may be redeemed before maturity. Corporate bonds trade at a price to the highest yield (lowest price) of either the price to call or the yield to maturity. Research and know if the call is at par or at a premium price in order to perform the calculation.

Consider advanced corporate bond calculations, such as duration. Duration is designed to measure the probability of a bond being held to maturity or subject to a high probability of a early redemption based on the trend of interest rates and the coupon and maturity of the bond. Many other risk-adjusted corporate bond prices are used in modeling portfolios of large institutional clients.

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