Market value of bonds?

Question

What does the below statement means? I am so confused.

The market value of bonds = present value of future income to bondholders

Please give me a clear easy explanation as I am new to these terms and I am currently revising for my exams. Thank you!

Answer 1

A $100 dollars today is worth more than $100 10 years from now, both because there will be inflation and because you could invest the $100 and increase its value over the next 10 years. The interest paid by the bond compensates you for the difference. If you get an interest rate r on a bond payable in 10 years then the your future payment on a $100 will be
$100(1+r)^10=payoff
If instead the payoff in 10 years will be $100 then the present value of the bond is given by
PV=$100/(1+r)^10
which is the amount you would be willing to pay for such a bond today, that is its market value.
For Example with regular payouts see
http://academic.uofs.edu/faculty/gramborw/tubonds.html

Answer 2

The future income to the bondholders are all of the payments left on the bond.

For example, if it is a $1000, 10% bond for 20 years, the bondholder will receive a $100 payment for 19 years, and $1100 payment in year 20 (the 20th payment + repayment of the bond).

You have to discount all of these payments and sum.

Hopefully you are not entirely new to these terms if you have it on an exam soon.

Answer 3

the main significant severe venture is to get the economic gadget transforming into back. confident the debt, credit status, commerce imbalance are all portion of the precedence, yet focusing too right now on each physique of them shouldn't help. If the value for halting the deficit is to cut back back spending lots that it floods the interest industry with laid of government workers, and stalls this gentle fix, then is it particularly outstanding well worth it? i don't think of of so. shall we desire to look on the huge photograph and do what it takes to stay the two fiscally in value on an same time as additionally encouraging enhance, exceedingly interest enhance. we've basically been for the era of the worst recession simply by certainty the Nineteen Thirties. it particularly is very not an argument which may be solved over evening. the undeniable fact that 0.5 individuals at the instant are not status in bread lines is a few ingredient, a minimum of. And to those who blame Obama, understand that the economic gadget merely approximately imploded until now he substitute into elected. inspite of if he substitute into an economic genius and had the political climate to do inspite of he needed to, we in spite of the undeniable fact that weren't going to get out of this without some economic discomfort.