PV of Bonds – BEC Question

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  • #2698365
    say
    Participant

    In calculating the PV of a bond at a certain point in time, do you discount it by the number of periods left to maturity, or the total number of periods of the bond? Say there are a total of 5 periods, but 3 periods have passed. Would it be discounted by the factor of the 5 or the 2?

    #2698395
    12tang
    Participant

    Periods left to maturity. As bonds mature, you amortize them, such that the balance sheet reflects their current value via amortization. If you did the original term for valuing, you'd be over-valued on the Balance sheet.

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    #2698398
    say
    Participant

    What if it is to assess the market value of the bond at the present? Not considering what it is recorded for on the balance sheet, but if you were to sell that bond out in the market at that time?

    #2698431
    12tang
    Participant

    If you reclassed the held to maturity bond to a trading security, you'd present it at Fair value. The terms of the bond itself do not determine fair value. The market will dictate what you report the bond at. So the effective interest rate (not stated) will be used and the remaining periods of the bond would be used to help you find the PV factor.

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    FAR - PASS

    AUD - PASS

    REG - PASS

    BOOM!  JUST LIKE THAT, I GOT MY LIFE BACK!  =D

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