How to Calculate a Market Value Bond
Bonds that are traded on financial markets—negotiable bonds—do not necessarily have a price that matches their face value. In fact, it is rare for that to be the case unless the bond is very close to maturity. Bonds, whether issued by a government or a corporation, are very sensitive to changes in prevailing interest rates. The market value of a bond rises and falls in response to those interest rate changes and to any alteration in the credit rating of the bond issuer.
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Instructions
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Look on the bond certificate to find the face—or par—value. Most bonds purchased by individuals have face values of $1,000 or $5,000. Your broker also can provide the face value of a bond.
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Find the current price of the bond (the current price quote). Negotiable bond prices are quoted as a percentage of the face value, not in dollar amounts. For example, a price quote of 96.0 means the bond is selling at 96.0 percent of its face value. Most brokers provide online bond price look-up tools for account holders. Bond quotes are also available on public-accessible websites.
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Multiply the price quote by the face value of the bond to find market value. If a bond with a face value of $5,000 is selling at 96.0 percent of face value, the market value is $4,800.
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Tips & Warnings
Investors buy bonds mainly for their interest income. That is why changes in interest rates affect bond prices. If interest rates increase, a bond’s rate becomes less attractive to investors, so the price is likely to fall. The reverse happens if interest rates fall. Then the bond’s rate of interest is comparatively more attractive and investor demand drives the price up.
As a bond approaches the date it must be redeemed by the issuing company or government (the maturity date) the bond price will draw closer to face value. Investors know they will soon receive the face value, regardless of any price variations that occurred during the life of the bond.
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