Don't be left in the dark when it comes to your investments. Take matters into your own hands and do the math to be sure you come out on top.
- TIP: Duration is always expressed in negative numbers.
- Step 1: Determine the total market value for each year. Then add up the the time periods to get the final duration of the bond, which should be expressed as a whole negative number. This is how many years until the bond's value is recovered.
- FACT: The $5,000 double-E series bond features the face of Revolutionary War hero Paul Revere.
- Step 2: Divide each of the present value factors by the current market value to get the time period for that value.
- Step 3: Use the present value factor to get the present value in dollars for each year. Add each of these calculations together to get the total market value of the bond.
- Step 4: Use the yield per period formula: one plus the annual interest rate multiplied by time of the payment divided by one to determine the present value of the bond.
- Step 5: Use a calculator to multiply the present value factor by the amount of the coupon -- in dollars -- to get the present value factor in dollars.
- Step 6: Search online for a bond-pricing formula that will tell you the true cost of a bond based on the length of time for the bond, the interest rate, and the coupon payment.