How to Calculate Current Bond Price
When it comes to calculating current bond prices, understand that bonds are usually issued with a face value of $1,000, also referred to as par value. Par is the amount the bond investor is loaning to the bond issuer. It is also the amount that the investor will receive back when the bond matures. But once issued, bonds are bought and sold by investors on the secondary market for their current price, which fluctuates.
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Instructions
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Find out the current price of the bond. The par value is the price of the bond when it matures. The current price is what the bond costs now.
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Find out the bond coupon rate. That is the rate of interest paid to the investor. If the coupon rate is 7.5 percent, that means the investor will receive interest payments of $75 a year on a bond with a par value of $1,000. To calculate the current bond price, you will need to know how many years the bond will pay its dividend before it matures.
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Find the current yield. Current yield will often differ from the coupon rate because the current yield reflects the bond's current rate of return based on its current price and the interest payments that are left on the bond. The bond's yield to maturity tells you the rate of return you will receive on the bond at the current price if you hold it to expiration.
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Tips & Warnings
Sometimes bonds have provisions that allow the issuer to purchase the bond back from the investor before maturity. When that happens, the investor looses the income stream he or she was expecting from the bond.
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Comments
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It would be really useful to indicate some examples.
