[bcw1973]

Hello,

I am new to askmehelpdesk.com. I am currently pursuing my MBA and I am in my first Accounting class. I take the program online with University of Phoenix. I have a professor that has been non-existent in this class. Myself and many students have problem sets we have to complete and unfortunately, we are trying to learn from one another and not from the teacher.

My question is how can I compute the current price of a bond when the only information I have is the par value for the bond, its interest rate and its years till maturity?

Any help will be appreciated. Thanks
Brad

[morgaine300]

If there is no market rate (otherwise called effective rate or yield) and only the contract rate of the bond, the current price is the same as the face value.

The current price is based on current market rates. If the bonds were paying 5% and the market for a similar type bond was also 5%, your bonds are worth the number on them. But if the market had these bonds for, say, 6%, then your bonds would be worth less because they are paying less interest. Or if the market were paying only 4%, yours would be worth more cause they're paying higher. The current price of bonds go up and down like this as the market rate changes, because the bonds have a contracted rate.

If the market value is the same, then the value of the bonds isn't higher or lower -- it's just the face value. If you weren't given a market rate, I'm assuming it's the same as the bonds. But that of course is an assumption.