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 11

    An average yield on a particular day of 11 selected general obligation ...
  4. Bond Buyer 20

    A representation of municipal bond trends based on a portfolio ...
  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. Junk bonds differ because of their issuers' credit quality.
    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. Options & Futures

    Writing Covered Calls On ETFs

    The strategy of writing covered calls on ETFs can limit your losses and hedge risk, but they cap your upside potential.
  7. Bonds & Fixed Income

    What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields move in opposite directions.
  8. Taxes

    Why should I keep records on my tax-exempt bond transactions?

    Keep your purchase records on all investments, including tax-exempt bonds. Though the interest is tax-free, you may owe taxes if you sell your bond for a gain.
  9. Bonds & Fixed Income

    What causes a bond's price to rise?

    Learn about factors that influence the price of a bond, such as interest rate changes, credit rating, yield and overall market sentiments.
  10. Mutual Funds & ETFs

    How can I find good investments among lower rated bonds?

    Invest in high-yield bonds through mutual funds, exchange-traded funds or closed-end funds, leaving the job of finding a good deal to an expert.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center