Finance Formulas / July 19, 2018 / Luz Tyson
Bonds form a significant portion of the financial market and are a key source of capital for the corporate world. Therefore every corporate finance course in the MBA program will introduce students to bonds at varying depth. We have provided a quick outline of what a student will need to know to understand bonds and the pricing or valuation of bonds which is the primary focus in the initial corporate finance program.
You can use the bond price formula to determine the value of a bond. While it involves some number crunching, it’s a fairly straightforward process because future cash flows to the investor (the bondholder) are always specified ahead of time. The issuer has to meet the interest and principal payments as they come due, or the bonds will go into default – something that can have devastating consequences for the issuer and, in the case of corporate bonds, its shareholders.
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