Par Value Bond Calculator

A par value bond is a type of bond that is issued at its face value and typically repays the full amount at maturity while paying periodic coupon payments. This calculator helps you determine the current value of a bond based on its coupon rate, market interest rate, and years to maturity.

How to Use the Calculator

Enter the following details:

Face Value of Bond
– The amount repaid to the bondholder at maturity (typically $1,000).
Coupon Rate
– The annual interest rate paid by the bond, as a percentage of its face value.
Number of Years to Maturity
– The time left until the bond matures.
Market Interest Rate
– The current interest rate for similar bonds in the market.

Formula

Calculate Annual Coupon Payment

Annual Coupon Payment = Face Value of Bond * (Coupon Rate / 100)

Calculate Present Value of Coupon Payments

PV of Coupons = Annual Coupon Payment * [1 - (1 + Market Interest Rate / 100) ^ -Number of Years to Maturity] / (Market Interest Rate / 100)

Calculate Present Value of Face Value

PV of Face Value = Face Value of Bond / (1 + Market Interest Rate / 100) ^ Number of Years to Maturity

Calculate Total Present Value of Bond

Total Present Value = PV of Coupons + PV of Face Value

Example Calculation

Let’s assume Sarah is evaluating a $1,000 bond with:

Coupon Rate: 5%
Years to Maturity: 10
Market Interest Rate: 6%

Step 1: Calculate Annual Coupon Payment

Annual Coupon Payment = 1000 * (5 / 100) Annual Coupon Payment = $50

Step 2: Calculate Present Value of Coupon Payments

PV of Coupons = 50 * [1 - (1 + 6 / 100) ^ -10] / (6 / 100) PV of Coupons = 50 * [1 - (1.06) ^ -10] / 0.06 PV of Coupons ≈ 50 * [1 - 0.5584] / 0.06 PV of Coupons ≈ 50 * 7.0235 PV of Coupons ≈ $351.18

Step 3: Calculate Present Value of Face Value

PV of Face Value = 1000 / (1.06) ^ 10 PV of Face Value ≈ 1000 / 1.7908 PV of Face Value ≈ $558.39

Step 4: Calculate Total Present Value of Bond

Total Present Value = 351.18 + 558.39 Total Present Value ≈ $909.57

Since the bond price ($909.57) is lower than its face value ($1,000), this means the bond is trading at a discount due to the market interest rate being higher than the coupon rate.

Frequently Asked Questions (FAQs)

What does "par value" mean in bonds?

Par value is the amount a bondholder receives at maturity, typically $1,000 per bond.

What happens if the market interest rate is higher than the coupon rate?

If the market interest rate is higher than the bond’s coupon rate, the bond will trade at a discount (below par value).

What happens if the market interest rate is lower than the coupon rate?

If the market interest rate is lower than the bond’s coupon rate, the bond will trade at a premium (above par value).

How do investors use bond valuation?

Investors compare a bond’s calculated present value to its market price to decide whether it is overvalued, undervalued, or fairly priced.

Why do bond prices change?

Bond prices fluctuate based on:

Changes in market interest rates
Credit risk of the issuer
Time remaining to maturity