Present value formulas for bonds will take a look at the present value formulas for both a single payment and for an annuity. One of the reasons bonds works well to practice present value formulas is because they have both a single payment at the end of the term and an annuity payment and these are the major two formats we can use to calculate present value. Present value can be calculated multiple different ways. Present value can be calculated using equations, using present value tables, using financial calculators, or using Excel. We will focus on the present value formulas here.
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Use Excel to calculate present value PV using bond price as an example. There are many ways to calculate the present value. We can use present value tables, a financial calculator, math and formulas, or Excel. Each method has its pros and cons but it is important to know that are all doing much the same thing, leading to the same outcome. Excel has many advantages including formatting the present value calculations in different ways to pull more information. Calculating the bond price is a common example for present value calculations because bond prices have two separate cash flows, one being the present value of one and the other being an annuity. The two present value requirements of bonds are perfect for thinking about the main two present value types of calculations.
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