Value of a Bond
It is defined to be the present worth of all the amounts the bondholder will receive through his possession of the bond.
The bondholder will receive two types of payments which are:
1. Single payment which the owner will receive at the date of maturity of the bond, which is usually equal to the par value of the bond; and
2. The periodic payments for interest on the bond usually it is redeemed by the issuing corporations.
Formula for value of a bond:
Vn = value of the bond n periods before redemption
F = par value of the bond
C = amount paid to the bondholder at maturity of the bond which is usually equal to F
n = number of periods prior to redemption
r = rate of interest on the bond per period
i = actual rate of interest on the amount invested in the bond usually called yield.