When companies need to raise money, issuing bonds is one way to do it. A bond functions as a loan between an investor and a corporation. The investor agrees to give the corporation a specific amount of money for a specific period of time in exchange for periodic interest payments at designated intervals. These intervals are normally semi-annual. When the loan reaches its maturity date, the investor’s loan is repaid. 

Valuation of bonds

The current price is the present value of future cash flows associated with the bond. The present value is calculated using the yield till maturity as a discount rate. 


A bond with a face value of $1000 having a three years maturity offers 10% interest annually. If the yield till maturity is 8% with is the market value of bond.

PV = ($1000 x 10%) x [1- (1.08)-3] / 0.08 + $1000 x (1.08)-3

PV = $992.74

To Know more about Bonds Valuation see video:

Still want to learn more about Bonds

Checkout other online study materials on SolutionInn

Related solved question answer on Bonds

Join SolutionInn Study Help for
1 Million+ Textbook Solutions
Learn the step-by-step answers to your textbook problems, just enter our Solution Library containing more than 1 Million+ textbooks solutions and help guides from over 1300 courses.
24/7 Online Tutors
Tune up your concepts by asking our tutors any time around the clock and get prompt responses.
Post a Question

Answers from our experts for your tough homework questions

Relevant accounting tutors