Easy-to-follow video tutorials help you learn software, creative, and business skills.Become a member
When you evaluate a bond, either one that you're creating or one that you want to buy, you need to evaluate its price. If you know the start and end date the interest you'll pay and the redemption value, you can use the PRICEDISC function to calculate the bonds price. The information you need to know appears here in the sample workbook and cell C3 is the settlement date and that is the date that you take possession of the bond. Then the maturity date, that's the last date of the bonds life. That is the day it matures.
Then the discount rate and that is the interest rate applied to the investment. Then we have the redemption value and that's usually set to $100, but in this case there is no default value so we set it to 100. And then in cell C7 we have basis. The basis is how you count the days in a month and a year. So in this case we have option number 1 and that is actual. That means that you count the actual number of days instead of using some sort of an abstraction. So in a non-leap year you will have 365 days which include 28 days in February, whereas in a leap year you would have 366 days with 29 days in February.
The default value for the basis argument is 0 and that is 30 day months for a 360 day year. That is the North American standard but in this case we are going to calculate the actual days so that means we use basis number 1. So we can create a formula by clicking in cell C10, typing an equal sign, and then pricedisc, then a left parenthesis and we can fill in the cell references for the arguments. We have the settlement date in C3, comma.
Maturity date in C4, comma. The discount rate is in cell C5, comma. The redemption value is in C6, comma, and the basis is in C7 and that's our last argument so we type a right parentheses. Make sure all the references look right, they do, and press Tab. Pressing Tab completes the formula and we see the price per $100 for a bond with these terms should be $83.95. One other change I'll make just to show you how the formula would return a different value if we change the discount rate.
I will increase the discount rate to 4.25%. So I'll click in cell C5, 4.25 and it's already formatted as a percentage so you don't need to type percent sign. So what we should see because of a higher discount rate is the price per $100 go down and when we press Enter we see that it does to $81.81. So with this information in hand, you can evaluate a discounted security using the PRICEDISC function.
Get unlimited access to all courses for just $25/month.Become a member
82 Video lessons · 74494 Viewers
80 Video lessons · 129709 Viewers
52 Video lessons · 63949 Viewers
59 Video lessons · 49731 Viewers
Access exercise files from a button right under the course name.
Search within course videos and transcripts, and jump right to the results.
Remove icons showing you already watched videos if you want to start over.
Make the video wide, narrow, full-screen, or pop the player out of the page into its own window.
Click on text in the transcript to jump to that spot in the video. As the video plays, the relevant spot in the transcript will be highlighted.
Your file was successfully uploaded.