College of Applied Sciences, Nizwa

Department of International Business Administration

Chapter 11 – Valuing Bonds

Convertible Bond
Nominal (Par) Value of Bond
Conversion Ratio
Conversion Price

Nominal (Par) Value of Bond

Conversion Ratio
Number of Shares into which Bond may be Converted

u100
Conversion Price - Market Share Price
Conversion Premium
Market Share Price

Conversion Value Conversion Share Price u Conversion Ratio

Valuing Bonds – Irredeemable Bond

i
PD
KD

Where

i – Nominal Annual Interest Coupon Rate u Nominal Par  Value of the Bond 
PD – Price of Bond

KD – market discount rate, annual return required on similar bonds

I
VD
KD

Where

VD – total market value of all of the bonds of this type

I – total annual nominal interest of all the bonds

Formulas for “Chapter 11” Prepared by Rima Solanki – Course Coordinator for Finance (FINA3401) Page 1
 College of Applied Sciences, Nizwa
Department of International Business Administration

Valuing Bonds – Redeemable Bonds

   ....... 
1  k D 1  k D  1  k D  1  k D n
i1 i2 i3 Rn
PD 2 3

   ....... 
1  k D 1  k D 2 1  k D 3 1  k D n
I1 I2 I3 R* n
VD

where

i1, i2 and i3 = nominal interest per bond in years 1, 2 and 3 up to n years

I1, I2 and I3 = total nominal interest in years 1, 2 and 3 up to n years
Rn and R*n = redemption value of a bond, and total redemption of all bonds in year n, the
redemption or maturity date

Interest Yield (Flat Yield or Income Yield or Running Yield)

Gross Interest Coupon 
Interest Yield u100
Market Price

Formulas for “Chapter 11” Prepared by Rima Solanki – Course Coordinator for Finance (FINA3401) Page 2