Most bonds are worth their face value and the sum of dividends until maturity. Callable bonds are worth less because the issuer may redeem them before the maturity date. If interest rates drops before the bond matures, the issuer may exercise an option to cancel the bond and refinance it at a lower rate. Bond holders therefore face a reinvestment risk, and callable bonds therefore usually must offer higher coupons to balance the liability.
Add 1 to the bond's coupon rate. For example, if the bond offers a coupon of 0.08, and 1 to 0.08 to get 1.08.
Raise this value to the power of the number of years before the issuer calls the bond. For example, if the issuer calls the bond after just two years, raise 1.08 to the power of 2 to get 1.1664.
Multiply this factor by the bond's face value. For example, if the bond has a face value of $10,000, multiply 1.1664 by $10,000 to get $11,664.
Subtract the bond's call price, which usually matches the bond's par value. If the call price is exactly $10,000, subtract $10,000 from $11,664 to get $1,664. This is the callable bond's value.
- Jupiterimages/Photos.com/Getty Images
- How to Calculate for Gross Income on a Bond Interest Payment
- How to Calculate Appreciation
- How to Calculate Interest Expenses on a Payable Bond
- How to Calculate Capital Loss Carryover
- How to Calculate the Market Value of Bonds
- How to Calculate How Many Solar Power Panels Are Needed for a Whole House
- How to Calculate the Gain on the Sale of a Bond
- How to Calculate BTUs for House Cooling
- How to Calculate the Interest on Bonds Issued at a Premium
- How to Calculate LIFO & FIFO