Bond Value Calculator

By Stock Research Pro • May 2nd, 2011

The bond value calculator below will help you determine the value of a bond given its annual interest payments, the discount rate, the number of years it has until maturity and its par value at maturity. Personal financial advisors often recommend bond investing as a means to diversify a portfolio and add an element of stability with the mix of bonds, stocks, cash, and other assets of a portfolio varying depending on the needs and risk profile of the investor. Including bonds can also provide an income stream to the investor.

The Basics of Bond Investing

A bond is a debt security issued by a corporation or a government as a means for them to borrow money. Bond investing can be a good choice for risk-averse investors and for those investors who want to build an income stream. Many people are retired or approach retirement age look to bond investing as a means of protecting their capital and providing a reliable income stream to help fund their lifestyle. Younger investors often include bonds in their portfolio as a means to provide balance and manage overall portfolio risk. Each bond is issued for a specific time period known as the “maturity” (which can be anywhere from several months to 30 years or longer). At maturity, the issuer redeems the face value of the bond to the bond holder.

The Different Types of Bonds

Generally speaking, there are three types of bonds available to investors. Treasury bonds, issued by the federal government, are the lowest-risk option available. Municipal bonds or “munis” are offered by state and local government entities and typically provide a lower yield but do offer tax-exemption. The third type is corporate bonds which companies will issue to raise money for funding expansion and growth.

Additional Points for Bond Investors to Consider

  • While bonds are considered to be a safe, low-risk alternative to stock investing, there are times when bonds provide greater returns than stocks.
  • You can lose money investing in bonds as the issuing organization can default on its obligation. Bonds usually offer a greater return than savings banks or certificates of deposit to account for this added risk.
  • Bond prices change in response to interest rate change with bond prices moving in the opposite direction of interest rates.
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    The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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