Motto: I am proud to be a Cloverdale Cowboy, and the future of America. I have respect for myself, others, and property. There is no limit to what I can achieve. I promise to accept the challenges that will make me a leader of tomorrow. Welcome to Cloverdale Elementary School.
The present value of the face value (i.e. the maturity value) is calculated as follows: Therefore, the price of a bond is given by the following formula: Example 1: Bond with annual coupon payments. Company A has issued a bond having face value of $100,000 carrying annual coupon rate of 8% and maturing in 10 years. The market interest rate is 10%. The price of the bond is calculated as the present value of all future cash flows: Example 2: Bond with semiannual coupon payments. Company S has issued a bond having face value of $100,000 carrying coupon rate of 9% to be paid semiannually and maturing in 10 years.
The first step in calculating the bond's present value is to calculate the present value of the bond's interest payments. To obtain the present value of the interest payments you must discount them by the market interest rate per semiannual period. In our example, the market interest rate is 5% per semiannual period. The 5% market interest rate per semiannual period is symbolized by i.