Calculating Bond Value with Corporate Bond Quotes

Corporate bond quotes can be used to determine the estimated value of a bond instead of just its price. While price can be determined by simply looking at a bond's purchase cost, its actual value is a measure of its relative worth on the market. Value is a numerical representation of how much a bond will pay back in return for how much it costs to purchase. Bond quotes express value based on figures such as yield, maturity and risk.

 

Finding Bond Quotes


There are a number of Internet indexes tracking bond quotes. Any of these indexes should have a bond quote relatively similar to another index's because most indexes use the same factors to determine a quote. For example, they will use the rating given by an organization such as Standard & Poor's or Moody's to determine the relative risk of the bond. While the bond quotes listed on various resources will be relatively similar, there will be slight differences based on how the quote prioritizes these different items.

 

Yield, Price, Duration and Maturity

 

Bond yield expresses the payout you can expect to receive each term while you hold the bond. The price of a bond is the actual dollar value you will pay to own the bond. Duration is a measure comparing yield to price, and it is a more accurate depiction of the value of a bond than either of these measures separately. When you are searching corporate bond quotes, duration may be used to express the value of a bond instead of yield or price alone. The more consistent a bond's duration over its lifetime, the more stable the actual value of the bond even if price and yield fluctuate. Bonds with long maturity periods need consistent durations in order to be considered highly valuable.

 

Bond Risk

 

Duration shows the consistency of a bond's value, and consistent bonds tend to be lower risk. However, risk is independently measured as well by several rating's organizations. These raters have access to corporate reports and financial statements, and they use this information plus their modeling and experience to rate bonds. A bond's rating will be essential in its bond quote. You may know your personal appetite for risk, so you can choose bonds based on their relative risk and potential payoff. 

 

Using Corporate Bond Quotes to Find Valuable Investments

 

Once you understand these primary measures of a stock's value, you can review quotes to find bonds that offer the profile you are seeking. It is important to remember that there are both primary and secondary bond markets. When you are the primary purchaser of a bond, you are investing directly with the corporation. When you are a secondary purchaser, you are buying the bond from an investor who previously purchased it. This means there will be multiple bond values on a single corporate bond at any given time. You can elect to purchase the newly issued bonds if their quote appeals to you most. Or, you may find the secondary bond market offers investments more in line with your priorities.



How do you calculate bond value when corporate tax is given?



When you are considering the risk level of a bond based on corporate bond quotes, the calculations you view may account for corporate tax. Corporate tax is simply the percentage of income a corporation must pay the government. Often, it is used to calculate the cost of going into debt, which can help measure the likelihood the corporation will default on debt. Use this simple formula to determine cost of debt based on corporate tax: (risk-free rate + credit-risk rate) (1 - corporate tax). 

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