Hello, What are the terms of Bond Valuation Securities Corporation? Bond valuation is the determination of the fair value of a bond. As with any security or capital investment, the theoretical fair value of a bond is the present value of the stream of cash flows it is expected to generate. Therefore, the value of the bond is obtained by discounting the expected cash flow of the bond using the appropriate discount rate. Bonds are long-term debt securities.
Which are issued by corporations and government entities? Bond buyers receive periodic interest payments, called coupon payments, until maturity at which time they receive the bond’s face value and the final coupon payment. Most bonds pay interest. A bond indenture or loan contract specifies the characteristics of the bond issue. The following terms are used to describe bonds.
Par or face value: The par or face value of a bond is the amount paid to bondholders at maturity. For most bonds, the amount is $ 1000. It also generally represents the amount of money borrowed by the bond issuer.
Coupon rate: The coupon rate, which is usually fixed, determines the periodic coupon or interest payment. It is expressed as a percentage of the bond’s face value. It also represents the interest cost of issuing bonds to the issuer.
Coupon payment: Coupon payments represent periodic interest payments from the bond issuer to the bondholder. The annual coupon payment is calculated by multiplying the coupon rate by the bond’s face value. Since most bonds pay the amount of interest, usually half of the coupon is given annually to the bondholders every six months.
Maturity date: The maturity date represents the date on which the bond matures, that is, the date on which the face value is paid. The final coupon payment is also made on the maturity date.
Original maturity: The time remaining until the maturity date when the bond is issued.
Maturity remaining: Currently, there is a time remaining till the maturity date.
Call date: For bonds that are callable, that is, bonds that can be redeemed by the issuer before maturity, the call date represents the date on which the bond can be called.
Call price: The issuer has to pay an amount of money to call a callable bond. When a bond becomes callable for the first time, that is, on the date of the call, the call price is often equal to the face value, which is equal to the next year’s interest.
Required return: The rate of return an investor currently holds on a bond.
Yield to maturity: The rate of return that an investor would earn if he bought the bond at its current market price and held it until maturity. Alternatively, it represents the discount rate, which equates the discounted value of the bond’s future cash flows to its current market value.
Yield to call: The rate of return that an investor will earn if he has purchased a callable bond at its current market price, and holds it until the call date is called on the call date.
Example: Shows the cash flow for a semi-coupon coupon with a face value of $ 1000, a 10% coupon rate, and 15 years remaining until maturity. (Note that the annual coupon is $ 100 calculated by multiplying the 10% coupon rate by $ 1000 face value. Thus, the periodic coupon pays the equivalent of $ 50 every six months.)
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