What is bond valuation?

Bond valuation is a method to calculate the present value of the expected future returns,
earnings, or cash flow from a bond investment.

Bond Valuation is the method of calculating and estimating the present value of future interest
payments to estimate total bond yields at maturity.

The valuation considers the market interest rate or discounted cash flow rate to value the bond
yields accurately for an investor.

The calculation estimates the interest payments (quarterly, semi-annually, or annually) based on
the details mentioned in a bond indenture or agreement. Then adds these annuities to the face
value of the bond or principal amount for valuation.

The bond valuation enables an investor to estimate the present value of their future earnings
from interest payments and adds it to the bond’s par value or the principal amount.

A bond is a debt instrument, meaning the bond issuer borrows from an investor or lender. In
exchange, the bond issuer ensures a fixed interest rate for the period the investor holds the
bond. Thus, the interest provides a steady income for the bondholder till the maturity date of the
bond. Hence, upon maturity, the borrower repays the bondholder per the face value, less than
the face or more than the face value.

On the other hand, a zero-coupon bond will not pay any coupon payments or timely interest to
the investor or bondholder. Rather, in the case of a zero coupon bond, the bond price is
lowered, or the bond issuer issues the bond at a discounted rate to its face value. Thus, at
maturity, the investor receives a guaranteed full amount or par value of the bond. As a result,
the difference amount between the purchase price of the bond and the par value at maturity
becomes the interest earned by the investor.

Generally, zero coupon bond valuation will result in higher yields to maturity or returns for an
investor when the bond matures due to the lower price of the bond at purchase.

A coupon rate is a percentage of the bond’s principal amount or par value. Thus, the timely
coupon payments consist of this percentage amount payable to the investor at decided periods,
i.e., quarterly, semi-annually, or annually. Hence, factors such as bond price, principal value or
par value, coupon rate of a bond, and time to maturity are useful determinants for bond
valuation.
Formula of Bond Valuation

Where,

‘n’ = Number of years/ number of a coupon payment cycle

P (v) = Present value of the coupon rate

CR = Coupon Rate

F (v) = Future Value

‘r’. = Market interest rate, ‘ Discount rate,’ or ‘Yield to maturity.

Consequently, to calculate bond valuation or future bond price, an investor should have certain
crucial information for its calculation. Such as,

1. Coupon rate
2. Estimated coupon payments
3. Payment cycles
4. Yield to maturity, also known as the discount rate, basically adjusts the future returns
based on the market interest rate, inflation, and currency fluctuations.
5. Date of maturity of the bond or number of years

Three types of equity share

dividends shares

value shares

growth shares.

Dividend shares refer to shares that are issued as dividends payments by companies.

Growth shares refer to shares whose values increase rapidly, providing capital gains to
investors.

Value shares are shares that are traded at rates lower than their intrinsic value. These shares
generally rise in price over time.

Equity research professionals

are best known for the reports they publish, but the senior staff (“Research Analysts”) in these
groups spend most of their time developing new business and pitching their research, as well as
presenting their insights to management teams and institutional investors.

Typical hierarchy in Equity Research firms

equity research senior analyst

would cover a sector with not more than 8-15 stocks. Coverage implies tracking these stocks
actively. Senior Analyst tries to bring maximum companies under coverage in the sector they
track (initiating the coverage)

The primary job is to support the Senior Analyst in the best way possible. Updating the financial
model, verifying the data, and preparing the valuation models.
The main responsibilities of a Junior Analyst are to support the Associate in every format.The
majority of the work done by Junior Analysts is related to data excel etc.