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Basic Bond Valuation

The value of a bond is the present value of the contractual payments its issuer (corporate) is obliged to make from the beginning till maturity. The appropriate discount rate would be the required return commensurate with risk and the prevailing interest rate. Symbolically,

1

where
B = value of the bond at 1 = 0
t = annual interest paid
n = number of years to maturity (term of the bond)
M = par/maturity value
K = required return on the bond

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