# PRICE: Calculating the price of a security that pays periodic interest

## Video: PRICE: Calculating the price of a security that pays periodic interest

If your company needs to raise some cash and has determined that issuing stock isn't in its best interests, you might borrow money by issuing bonds. Pricing bonds for sale is a very tricky business. In essence you're betting that you can earn a higher rate of return on the borrowed money than you pledged to pay your bond holders. Once you know the parameters of the bond you'd like to issue you can use the PRICE function to find the break even issue price. The PRICE function has seven arguments and those are settlement date here in B3, maturity date in B4, percent coupon in B5, yield in B6, redemption value B7, frequency in B8 and basis in B9.

## PRICE: Calculating the price of a security that pays periodic interest

If your company needs to raise some cash and has determined that issuing stock isn't in its best interests, you might borrow money by issuing bonds. Pricing bonds for sale is a very tricky business. In essence you're betting that you can earn a higher rate of return on the borrowed money than you pledged to pay your bond holders. Once you know the parameters of the bond you'd like to issue you can use the PRICE function to find the break even issue price. The PRICE function has seven arguments and those are settlement date here in B3, maturity date in B4, percent coupon in B5, yield in B6, redemption value B7, frequency in B8 and basis in B9.

The settlement date is the date that you gain ownership of the security. That date might be different from the bond's issuance date, which is the date the bond is made available for sale. The maturity date is the date the bond will be paid off. The percent coupon is the bonds interest rate that is used to determine how much money is paid to an investor every time a coupon is due. The yield is the bond's annual yield, in other words the amount of interest that humiliates during a year. The redemption value is the bond's redemption value per \$100 of face value and in almost every case that will be \$100.

If it's not, your financial advisor or investment strategist will tell you that it's not. Next frequency is the number of coupons that are paid every year. So the value in B8 can be either 1, 2 or 4, which means that coupons will either be paid annually, semi-annually, or quarterly. And finally, basis reflects the way that you count the number of days in a month and a year. So basis is 0, which is the default and is what we're using here, assumes a 30 day month and a 360 day year.

Other options include option number 1, which is actual which uses a 365 day year with 28 days in February for a non- leap year and 366 days with 29 days in February for a leap year. So with all that information in place let's go ahead and create our function. So I'll click in cell B11, type an equal sign, and then type price,left parenthesis and then we can fill in the cell references for our values.

First is settlement date that's in B3, comma. Maturity date is in B4, comma. The rates is the percent coupon and that is in cell B5, comma. The yield is B6, comma. Redemption value is B7, comma. The frequency and again it can either be 1, 2 or 4. That's in cell, B8 comma, and then the basis, and again that's how you count days and the month and the year, is in cell B9. Type a right parenthesis. Make sure all my references look good. They do and I'll press the Enter key to enter the formula.

And when I do we see that the price is \$90.36. So that means that to break even on this investment you would need to sell it for \$90.36 cents. Like the YEILD function, the PRICE function assumes bondholders always reinvest their interests and that the bonds interest rate never changes. Those assumptions rarely hold completely true but the PRICE function offers a first look at what you should charge your bond holders with the goal of making a profit on the transaction.

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#### This video is part of

Excel 2010: Financial Functions in Depth

52 video lessons · 13286 viewers

Author

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1. ### Introduction

2m 11s
1. Welcome
1m 6s
2. Using the exercise files
36s
3. Disclaimer
29s
2. ### 1. Analyzing Loans, Payments, and Interest

28m 32s
1. PMT: Calculating a loan payment
3m 31s
2. PPMT and IPMT: Calculating principal and interest per loan payment
4m 18s
3. CUMPRINC and CUMIPMT: Calculating cumulative principal and interest paid between periods
4m 30s
4. ISPMT: Calculating interest paid during a specific period
2m 13s
5. EFFECT and NOMINAL: Finding nominal and effective interest rates
3m 31s
6. ACCRINT and ACCRINTM: Calculating accrued interest for investments
4m 15s
7. RATE: Discovering the interest rate of an annuity
2m 41s
8. NPER: Calculating the number of periods in an investment
3m 33s
3. ### 2. Calculating Depreciation

19m 5s
1. SLN: Calculating depreciation using the straight-line method
1m 48s
2. DB: Calculating depreciation using the declining balance method
3m 10s
3. DDB: Calculating depreciation using the double-declining balance method
3m 20s
4. SYD: Calculating depreciation for a specified period
2m 13s
5. VDB: Calculating declining balance depreciation for a partial period
3m 24s
6. AMORDEGRC: Calculating depreciation using a depreciation coefficient
2m 27s
7. AMORLINC: Calculating depreciation for each accounting period
2m 43s
4. ### 3. Determining Values and Rates of Return

22m 33s
1. FV: Calculating the future value of an investment
2m 48s
2. FVSCHEDULE: Calculating the future value of an investment with variable returns
2m 21s
3. PV: Calculating the present value of an investment
2m 6s
4. NPV: Calculating the net present value of an investment
3m 17s
5. IRR: Calculating internal rate of return
2m 33s
6. XNPV: Calculating net present value given irregular inputs
2m 32s
7. XIRR: Calculating internal rate of return for irregular cash flows
1m 48s
8. MIRR: Calculating internal rate of return for mixed cash flows
2m 2s
9. DISC: Calculating the discount rate of a security
3m 6s
5. ### 4. Calculating Bond Coupon Dates and Security Durations

24m 12s
1. COUPDAYBS: Calculating total days between coupon beginning and settlement
3m 2s
2. COUPDAYS: Calculating days in the settlement date's coupon period
2m 48s
3. COUPDAYSNC: Calculating days from the settlement date to the next coupon date
3m 1s
4. COUPNCD: Calculating the next coupon date after the settlement date
2m 43s
5. COUPNUM: Calculating the number of coupons between settlement and maturity
2m 55s
6. COUPPCD: Calculating the date of a coupon due immediately before settlement
3m 4s
7. DURATION: Calculating the annual duration of a security
3m 20s
8. MDURATION: Calculating the duration of a security using the modified Macauley method
3m 19s
6. ### 5. Calculating Security Prices and Yields

28m 43s
1. DOLLARDE and DOLLARFR: Converting between fractional prices and decimal prices
2m 36s
2. INTRATE: Calculating the interest rate of a fully invested security
2m 50s
3. RECEIVED: Calculating the value at maturity of a fully invested security
2m 46s
4. PRICE: Calculating the price of a security that pays periodic interest
3m 19s
5. PRICEDISC: Calculating the price of a discounted security
2m 48s
6. PRICEMAT: Calculating the price of a security that pays interest at maturity
1m 57s
7. TBILLEQ: Calculating the bond-equivalent yield for a Treasury bill
1m 50s
8. TBILLPRICE: Calculating the price for a Treasury bill
1m 31s
9. TBILLYIELD: Calculating the yield of a Treasury bill
1m 41s
10. YIELD: Calculating the yield of a security that pays periodic interest
2m 59s
11. YIELDDISC: Calculating the annual yield for a discounted security
2m 9s
12. YIELDMAT: Calculating the annual yield of a security that pays interest at maturity
2m 17s
7. ### 6. Calculating Prices and Yields of Securities with Odd Periods

12m 1s
1. ODDFPRICE: Calculating the price of a security with an odd first period
3m 17s
2. ODDFYIELD: Calculating the yield of a security with an odd first period
3m 3s
3. ODDLPRICE: Calculating the price of a security with an odd last period
2m 44s
4. ODDLYIELD: Calculating the yield of a security with an odd last period
2m 57s

1m 5s
1m 5s

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