All bonds include a face value, which is the amount you will receive when the bond matures. The bond's total value, or the proceeds you will get from selling it, is the sum of this face value and the bond's added value from interest. Each bond's coupon states its interest rate. When a bond returns its dividends, the investor can reinvest the returns, compounding the bond's interest. The bond's total value takes into account its principle and its compounded interest.
Add 1 to the bond's coupon rate. For example, if a bond offers a coupon of 0.06, adding 1 gives 1.06.
Raise this value to the power of the number of years in the bond's term. For example, if the bond matures after five years, raising 1.06 to the power of 5 gives 1.338.
Multiply this factor by the bond's face value. For example, if you are selling a $5,000 bond, multiplying $5,000 by 1.338 gives $6,690. This selling price for the bond takes into account its future dividends.
- "The Strategic Bond Investor: Strategies and Tools..."; Anthony Crescenzi and Mohamed El-Erian; 2010
- "All About Bonds..."; Esme Faerber; 2008
- Internal Revenue Service. "Publication 550: Investment Income and Expenses." Accessed July 24, 2020.
- Municipal Securities Rulemaking Board. "How Are Municipal Bonds Quoted and Priced?" Page 2. Accessed July 24, 2020.
- U.S. Department of the Treasury, Bureau of the Fiscal Service. "Treasury Bills." Accessed July 24, 2020.
- The Florida Legislature. "658.23 Submission of articles of incorporation; contents; form; approval; filing; commencement of corporate existence; bylaws." Accessed July 24, 2020.
- Apple. "2019 10-K," page 1. Accessed July 24, 2020.
- Amazon. "2019 - 10-K," page 1. Accessed July 24, 2020.
- The Iowa Legislature. "Chapter 493: Stock Without Par Value," page 1. Accessed July 24, 2020.
Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.