Investing in Bonds - Fixed Income Instruments
Bonds are a great way for investors to act as lenders and receive fixed-income returns until the bond matures. Even after the initial purchase, investors can sell the bond to other investors.Formula
Present Value = Future Value / (1 + Discount Rate)^Time PeriodHow do I calculate the bond?
Calculating the value of a bond is an important step for any investor. The bond's theoretical value can be determined by calculating the present value of its future interest payments and dividends. This can be done by using a formula such as the following: Present Value = Future Value / (1 + Discount Rate)^Time Period.
Tools such as Sourcetable can be used to help calculate the present value of a bond. Although bond valuation is a complex process, understanding the basics of bond valuation and using the right tools can help investors make informed decisions.
What is a Bond?
A bond is a form of fixed income that is issued by either a corporate or government entity. It pays a fixed or floating interest rate and has a maturity date.
What is a Fixed Interest Rate?
A fixed interest rate is an interest rate that does not change over the life of a bond.
What is a Floating Interest Rate?
A floating interest rate is an interest rate that changes over the life of a bond. It is usually based on a benchmark such as LIBOR.
What is Maturity Date?
The maturity date is the date on which the bond is due to be repaid. It is usually set at the time the bond is issued.
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Key Points
How do I calculate bond?
Present Value = Future Value / (1 + Discount Rate)^Time Period
Bonds are a form of debt
Bonds are a type of loan that a company takes out from investors. The company agrees to pay back the loan at a predetermined time with a predetermined interest rate.
Bond terms include maturity, interest rate, tax status, and callability
The term of the bond includes the maturity date, which is the date when the bond needs to be paid back. The interest rate is the percentage of the loan amount that needs to be paid back. The tax status of the bond needs to be taken into account when assessing its value. Lastly, the callability of the bond determines whether or not it can be redeemed early by the company.
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