# Valuation of Bonds/Debentures

A bond or a debenture is a long-term debt instrument or security. It is issued by business
enterprises or government agencies to raise long-term capital. A bond usually carries a
fixed rate of interest. It is called as coupon payment and the interest rate is called as
the coupon rate. The coupon payment can be either annually or semi-annually.

A bond can be irredeemable or redeemable. Redeemable bonds have a fixed maturity date and
irredeemable bonds have perpetual life with only interest payments periodically.

Valuation of Bonds/Debentures:

Basically, the value of a bond is the present value of all the future interest payments
and the maturity value, discounted at the required return on bond commensurate with the
prevailing interest rate and risk.

Where:

Interest 1 to n = Interests in periods 1 to n.

Unless otherwise mentioned, the maturity value of the bond is the face value.

- When the required rate of return is equal to the coupon rate, the bond value equals the par value.
- When the required rate of return is more than the coupon rate, the bond value would be less than its par value. The bond in this case would sell at a discount.
- When the required rate of return is less than the coupon rate, the bond value would be more than its par value. The bond in this case would sell at a premium.

Example:

Let us assume the face value of the bond is $1,000 (maturity value $1,000). The bond has a 10%
coupon rate payable semi-annually and the yield to maturity (return) is 9%. The bond matures in
5 years period from now. What is the value of the bond?

Interest 1 till 10 = $50 per semi-annual period. ($100 annually)

n=10 because 5 years x 2 payments per period.

Yield to maturity = 9%, therefore, semi-annual YTM (return ) =9/2 = 4.5% or 0.045

Solving for the above equation, we get

Bond price = $1,040 (rounded)

Interest 1 till 10 = $50 per semi-annual period. ($100 annually)

n=10 because 5 years x 2 payments per period.

Yield to maturity = 9%, therefore, semi-annual YTM (return ) =9/2 = 4.5% or 0.045

Solving for the above equation, we get

Bond price = $1,040 (rounded)

**Online Live Tutor Valuation of Bonds, Debentures:**

We have the best tutors in Finance in the industry. Our tutors can break down a complex
Valuation of Bonds, Debentures problem into its sub parts and explain to you in detail
how each step is performed. This approach of breaking down a problem has been appreciated
by majority of our students for learning Valuation of Bonds, Debentures concepts. You will
get one-to-one personalized attention through our online tutoring which will make learning
fun and easy. Our tutors are highly qualified and hold advanced degrees. Please do send us
a request for Valuation of Bonds, Debentures tutoring and experience the quality yourself.

**Online Valuation of Bonds, Debentures Help:**

If you are stuck with a Valuation of Bonds, Debentures Homework problem and need help, we
have excellent tutors who can provide you with Homework Help. Our tutors who provide Valuation
of Bonds, Debentures help are highly qualified. Our tutors have many years of industry experience
and have had years of experience providing Valuation of Bonds, Debentures Homework Help. Please do
send us the Valuation of Bonds, Debentures problems on which you need Help and we will forward then
to our tutors for review.

**Other Topics under Valuation of Bonds and Shares**