WOLFRAM|DEMONSTRATIONS PROJECT

Determinants of the NPV of a Bond

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Time to Maturity is 3 years; Annual Coupons; Issuing Price and Redemption of Own Bond are 100
coupon of similar bond (%)
4
coupon of own bond (%)
4
Similar Bond
Low Demand
Normal Demand
High Demand
Redemption (Similar)
at Discount
at Par
at Premium
Reset
A company may, before issuing a bond, wonder which conditions this bond has to feature in order to be attractive for investors. In practice, this is done by comparing the "own bond" to be created to a "similar bond" that is traded in the market. The characteristics (price, redemption, and coupon) of this similar bond influence the yield to maturity of the similar bond, which is in turn used to discount the proceeds an investor may have from the own bond. By analyzing different situations, you can learn how different constellations of characteristics of the similar bond affect the net present value of the own bond.