How to Calculate the Market Value of a Bond Sold After the Bond Issue Date

Investors buy and sell bonds on secondary bond markets. Every bond has a principal, the cash that the investor paid the issuer to get the bond and that the issuer will presumably pay back. The bond also generates interest, usually at a fixed rate called the coupon rate. The market value of the bond after it is issued fluctuates depending on the current interest rate, interest rate expectations and the bond's rate.

Instructions

1. Find the bond's coupon rate, which should be listed on the face of the bond.

2. Compare it to the current going interest rates for comparable bonds.

3. Take the difference between the rates and apply it as a percentage to the principal. For example, if you have a $100 bond paying 10 percent and the going rate dropped to 8 percent, a 20 percent drop, you can charge about 20 percent more for your bond, or $120. This extra amount is the premium that investors are willing to pay for the extra income instead of giving $100 to the issuer for a new bond for 8 percent.

Tips & Warnings

• Calculating market price is an inexact science, because individual buyers have different ideas about where future interest rates will go and may be willing to pay a little more or a little less. Furthermore, CNN Money reports that bond prices fluctuate more the closer they come to maturity.

References

• The Motley Fool: Bond
• The Motley Fool; Foolish Fundamentals: Bonds; December 2008
• The Motley Fool; Make the Most from Your Bonds; Dan Caplinger; March 2007
• CNN Money: How Bonds Work