# Bond valuation example

To calculate the value of a bond on the issue date, you can use the PV function. In the example shown, the formula in C10 is:

=-PV(C6/C8,C7*C8,C5/C8*C4,C4)

*Note: This example assumes that today is the issue date, so the next payment will occur in exactly six months. See note below on finding the value of a bond on any date.*

In the example shown, we have a 3-year bond with a face value of $1,000. The coupon rate is 7% so the bond will pay 7% of the $1,000 face value in interest every year, or $70. However, because interest is paid semiannually in two equal payments, there will be 6 coupon payments of $35 each. The $1,000 will be returned at maturity. Finally, the required rate of return (discount rate) is assumed to be 8%.

The value of an asset is the present value of its cash flows. In this example we use the PV function to calculate the present value of the 6 equal payments plus the $1000 repayment that occurs when the bond reaches maturity. The PV function is configured as follows:

=-PV(C6/C8,C7*C8,C5/C8*C4,C4)

The arguments provided to PV are as follows:

**rate** - C6/C8 = 8%/2 = 4%

**nper** - C7*C8 = 3*2 = 6

**pmt** - C5/C8*C4 = 7%/2*1000 = 35

**fv** - 1000

The PV function returns -973.79. To get positive dollars, we use a negative sign before the PV function to get final result of $973.79

### Between coupon payment dates

In the example above, it is relatively straightforward to find the value of a bond on a coupon payment date with the PV function. Finding the value of a bond between coupon payment dates is more complex because interest does not compound between payments. The PRICE function can be used to calculate the "clean price" of a bond on any date.

### More detail

For a more detailed explanation of bond valuation, see this article on tvmcalcs.com.

## Excel Formula Training

Formulas are the key to getting things done in Excel. In this accelerated training, you'll learn how to use formulas to manipulate text, work with dates and times, lookup values with VLOOKUP and INDEX & MATCH, count and sum with criteria, dynamically rank values, and create dynamic ranges. You'll also learn how to troubleshoot, trace errors, and fix problems. Instant access. See details here.