There are several ways that investors can save and grow their money. Some conservative ways are regular savings accounts, money markets, and also, purchasing bond. A bond is basically a debt, that you purchase, also called an IOU . The investor agrees to loan money, either to a company, or a government, in exchange for a specific interest rate that is predetermined. Bonds usually pay more then a regular savings account and are very safe, especially government bonds.
There are necessary variables. To determine the value of your bond. The current price of the bond or the price you pay to purchase the bond is the first thing. The bond par value is the price of the bond when it matures. Its also known as the redemption value,. This is the amount of money the investor would receive when he redeems the bond. The bond coupon rate is the rate of interest paid to the investor. If the coupon rate is 10 percent, and the par value is $1000 then the purchaser would receive $100 per year.
The years of maturity is also necessary to calculate the yield. The years of maturity is simply the length of time till the bond can be cashed. The bond yield is the rate of interest paid to the bond holder, based on the purchasing price, and the interest payments made on the bond. The bond yield to maturity is takes the difference between the bonds current price, and its par value, as well as the rate of interest paid on the bond.
The current bond yield calculator uses these things to get the value of the bond. For example. If the current bond price is $800, and the bond par value is $1000, the bond coupon rate is 8%, and the years of maturity is 10 years. This results in a current bond yield of 10 percent, and a bond yield to maturity of 11.462 percent. This calculation lets the investor know the actual value of the bond at the present time
Understanding how a bond works, the terminology and a simple math formula will assure you have the knowledge necessary to calculate the value of your bond. There are many online bond calculators if you wan an even easier solution. |