BOND VALUATION

Bond Valuation

Bond Valuation

A bond is a negotiable debt security under which the borrower takes money and in return agrees to pay fixed amounts of interests after certain intervals, and besides returns the principal amount when the bond reaches maturity (Harvey, 2000).

Generally, the par value of a bond is $1,000. A bond has some similarities with an “I Owe You” (IOU). Bonds also have certain resemblance with the Certificates of Deposit (CDs) and savings accounts. Investors who deposit money in saving accounts or CDs (Certificates of Deposit) are in effect a loan to banks.

Banks pay the depositor interests over their investments ...