Bonds pay a fixed interest rate to investors over the life of the agreement. Since the interest rates offered for new bonds change over time, a situation exists where some bonds pay more or less interest than others on the market, even if the bonds are sold by the same company. Calculating the market value of bonds in your portfolio can help you to determine whether you can make a sufficient profit on selling a bond in the market in order to justify letting it go.
Items you will need
- Annuity table
Determine your bond's face value, its interest rate and the present interest rate offered on new bonds. The interest rate offered in the market at any given time may or may not be the same as the rate on a bond that you hold.
As an example, you may have a $1,000 face value bond paying 10 percent interest when the prevailing market interest rate is 9 percent.
Determine the number of interest, or coupon, payments that are remaining on the life of the bond. Determine the total amount of each regular interest payment as well.
To continue the example above, if your bond has seven years left until maturity, at 10 percent interest the annual interest payments would come to $100, and there would be seven remaining coupon payments.
Calculate the present value of your bond's coupon payments (PVC). Use an annuity table (see Resources 2) to begin calculating PVC. Find the cell in the table matching up with the number of remaining coupon payments -- left column -- and the current market interest rate -- top row -- in the table, then multiply the number in that cell by the value of the regular interest payments to find your PVC.
In the example, the PVC would work out to be around $503 (5.03295 x $100).
Calculate the present value of the bond's par value (PVP). Use the following formula (^ means "raised to the power of") to calculate PVP :
Bond Par Value = PVP (1 + Current Market Rate) ^ Number of Interest Periods
Plug in the variables and solve algebraically to isolate PVP in the equation. In our example, PVP would work out to be around $583.
Add PVC and PVP to determine the current market value of your bond. In our $1,000 bond example, adding $503 (PVC) and $583 (PVP) indicates a present market value of $1,086.
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