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: Everything You Need To Know
    Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

  2. The Advantages Of Bonds
    Investing

    The Advantages Of Bonds

  3. Corporate Bonds: An Introduction To ...
    Bonds & Fixed Income

    Corporate Bonds: An Introduction To ...

  4. Savings Bonds For Income And Safety
    Bonds & Fixed Income

    Savings Bonds For Income And Safety

comments powered by Disqus
Hot Definitions
  1. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  2. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  3. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  4. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
Trading Center