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With these inputs the Excel function PRICE can be used to determine the bond‟s value or price. An
Excel template which can be used to calculate the price of any bond is included in the chapter
materials, and this template was used to determine the price of the bond in this example. One final
piece of information is necessary to use this template, and that is the basis day count to use in the
calculation. Bonds are quoted and traded in the United States on a 30/360 basis, which means months
and years are assumed to have 30 and 360 days, respectively. When using the PRICE function in
Excel there are several options for the basis, and the template included in the chapter materials inputs
zero as the basis, which tells Excel to calculate the bond price on a 30/360 basis.
With this information, the Excel template and PRICE function returns a bond price of 106.2727.
This is the price of the bond as a percent of the face value, so to determine the price of the bond in
dollars, multiply $100 by 106.2727%, which produces $106.2727. Given the bond‟s coupon interest
and principal payments, the timing of these payments, the bond‟s $100 face value, and market interest
rates on December 17, 2008, this is the price or value of the bond on that date.
The total price to purchase this bond on the settlement date will be higher, however, due to the
interest accrued on the bond since the last coupon interest payment date. Recall the settlement date is
December 17, 2008, and the coupon interest payment dates are every October 15 and April 15.
Current bondholders who choose to sell the bond on December 17, 2008, must be paid for the interest
accrued on their bond since the most recent coupon interest payment date of October 15, 2008,
approximately two months in this case. The same template used to determine the bond price of
$106.2727 uses Excel‟s COUPDAYBS function to determine that 62 is the number of days since the
most recent coupon interest payment date, which is then used to calculate the accrued interest on the
bond as follows:
For the Breckenridge Company bond in this example, the accrued interest on the bond since
October 15, 2008, is $1.1625, so the total price an investor would pay to purchase the bond on
December 17, 2008, is the bond price of $106.2727 plus the accrued interest of $1.1625, for a total of
$107.4352.
Using the specific information for the hypothetical bond issued by the Breckenridge Company and
the Excel functions PRICE and COUPDAYBS in the template, we have determined the price of the
bond as well as the accrued interest on the bond. Calculating the price and accrued interest of any
bond is fairly simple due to the contractual nature of debt securities, particularly the known amount
and timing of coupon interest and principal payments.
In the next section we will determine the value of common stock, which is significantly more
difficult, due to the unknown amount and timing of cash flows to common stockholders, specifically