The financial industry is filled with jargon that can make investing downright confusing. Bonds in particular have lots of lingo associated with them that can make it hard to determine the exact payment terms of the investment. When you buy a bond, the issuer commits to paying you interest on a regular basis, along with a return of your invested principal when the bond matures, or comes due. Most bonds have a face value of $1,000, meaning you will receive $1,000 per bond when they mature. Par value is simply another term for face value.
Determine Principal at Maturity
Count the number of bonds you have. If you hold your bonds at a financial-services firm, you should have an itemized listing of your holdings online or on your printed statement. Multiply the number of bonds you have by $1,000. Each bond matures at a face value of $1,000, also known as the maturity value or par value. If you own 10 bonds, you'll receive 10 x $1,000, or $10,000 in principal on the maturity date.
Calculate Annual Interest
Get the interest rate on your bonds. When your bond matures, you'll receive both principal and interest. The interest rate on your bond will help you calculate what payment to expect. Multiply the interest rate by $1,000 to determine the annual interest earned. For example, if you have one bond paying 5 percent interest, your annual payments will total $50.
Find Incremental Payments
Divide the annual interest by the number of interest payments per year. Most bonds pay semi-annually, or twice per year. If you earn 5 percent interest on a $1,000 bond, you'll receive two $25 payments — for a total of $50 — over the course of a year. In rare cases, bonds do pay monthly, or even quarterly. If you own one of these bonds, you'll have to divide your $50 annual payment by either 12, if your bond pays monthly, or 4, if your bond pays quarterly, to determine the amount of your final payment.
Arrive at Total Cash Proceeds
Multiply the final interest payment per bond by the number of bonds you own. If you own 10 bonds that pay 5 percent interest, you'll earn $50 x 10 bonds = $500 per year. For regular bonds that pay twice per year, you'll receive $250 semi-annually. Add the amount of your final interest payment to your principal payout. If you own 10 bonds, you'll receive $10,000 in principal. If the bonds pay 5 percent interest, your final interest payment will total $250. Your total cash proceeds will amount to $10,250.
- Jupiterimages/Photos.com/Getty Images
- How to Calculate the Effective Interest Rate for Discounted Bonds
- Annual vs. Semi-annual Bond Analysis
- An Equation for the Value of a Bond at Maturity
- How to Find the Total Cash Interest Paid Over the Life of a Bond
- Relationship Between Bond Price & Yield to Maturity
- Serial Bonds vs. Debenture Bonds
- Do Bonds Compound Interest?
- How to Calculate Maximum Theoretical Value of a Bond