Bond Valuation: Formula, Steps & Examples

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question 1 of 3

The value of a bond is calculated using the present value of discounted cash flows. What is the discount rate?

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1. When the coupon rate is above the discount rate, the bond value is _____ the face value and is considered to be at a _____.

2. Smith Darby has issued a five-year bond with a coupon rate of 8% and a face value of $5,000. As a personal investor, you require a rate of return of 10%. What is the value of the bond?

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About This Quiz & Worksheet

This quiz and worksheet is designed to test your knowledge of bonds and how to determine their valuation. You'll address your understanding of common terminology like coupon rate and discount rate as well.

Quiz & Worksheet Goals

This quiz and worksheet was created to review what you know about:

  • What the discount rate means
  • Understanding the impact the coupon and discount rates have on bond value
  • Calculating the value of a bond

Skills Practiced

  • Information recall - see if you remember what the discount rate refers to
  • Problem solving - use your knowledge of calculating bond valuations to solve sample problems
  • Making connections - use understanding of how coupon rates and discount rates impact the value of a bond

Additional Learning

There is a more detailed account of this topic in the provided lesson, Bond Valuation: Formula, Steps & Examples. This lesson offers more insight into:

  • Common terminology with definitions, like hurdle rate
  • What it means for a bond to be offered at a premium
  • Setting up the equation for present values
  • Steps involved in finding the bond value
  • What the weighted average cost of capital is
  • Selling before maturity
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