Bond Valuation

AAA

DEFINITION of 'Bond Valuation'

A technique for determining the fair value of a particular bond. Bond valuation includes calculating the present value of the bond's future interest payments, also known as its cash flow, and the bond's value upon maturity, also known as its face value or par value. Because a bond's par value and interest payments are fixed, an investor uses bond valuation to determine what rate of return is required for an investment in a particular bond to be worthwhile.

INVESTOPEDIA EXPLAINS 'Bond Valuation'

Bond valuation is only one of the factors investors consider in determining whether to invest in a particular bond. Other important considerations are: the issuing company's creditworthiness, which determines whether a bond is investment-grade or junk; the bond's price appreciation potential, as determined by the issuing company's growth prospects; and prevailing market interest rates and whether they are projected to go up or down in the future.

RELATED TERMS
  1. Dollar Duration

    Dollar duration measures the dollar change in a bond's value ...
  2. Covered Bond

    Securities created from public sector loans or mortgage loans ...
  3. Bond Buyer 20

    A representation of municipal bond trends based on a portfolio ...
  4. Bond Buyer 11

    An average yield on a particular day of 11 selected general obligation ...
  5. Net Interest Cost (NIC)

    A mathematical formula that an issuer of bonds uses to compute ...
  6. Cash Flow

    1. A revenue or expense stream that changes a cash account over ...
Related Articles
  1. Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

    Don't be fooled by the name - junk bonds may be for you if you know how to analyze them.
  2. Investing

    The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.
  3. Bonds & Fixed Income

    Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  4. Bonds & Fixed Income

    Savings Bonds For Income And Safety

    Bonds offer undeniable benefits to investors, including safety and tax advantages.
  5. Bonds & Fixed Income

    Boost Bond Returns With Laddering

    If you want a diversified portfolio and steady cash flow, check out this fixed-income strategy.
  6. Economics

    What Would Happen If Interest Rates Rise?

    This time around, while U.S. long-term yields have rebounded from their January lows, rates have generally been lower than where they ended 2014.
  7. Investing

    Strategies To Position Your Bond Portfolio

    Fixed income investors may not be able to see them all right now, but important trends are stirring on the investment horizon.
  8. Savings

    How To Make Money With Airbnb: Risks & Rewards

    Airbnb lets you turn your home or spare room into extra cash. Here's how to make money and protect yourself from the risks.
  9. Mutual Funds & ETFs

    Consider This High-Yield ETF's Risks and Rewards

    Finding quality high-yield opportunities isn’t easy, but the YieldShares High Income ETF (YYY) has potential.
  10. Investing

    What are Fixed-Income Securities?

    For a fixed-income security, the periodic return on the investment is the same throughout the life of the security. Principal is returned at the time of maturity. The payment can be in the form ...

You May Also Like

Hot Definitions
  1. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  3. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  4. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  5. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center