Exxon mobil corporate bond

The present value of the semiannual interest payments plus the present value of the principle payment equals the bond’s value. The discount component in the classic technique of valuation is the single interest rate or market rate (Brealey and Myers, 2003). The interest rate in this example is 5%. The typical valuation technique, according to Crosby (1983), assumes owning a bond till maturity. In this case, the number of periods would be the number of years to the maturity of the bond. Cash flows include all the periodic interest payments and the payment of the bond’ par value.

Now we can calculate the price of the bond. Which is also called the value of the bond. The first term is the present value of an annuity. The process of calculating the PV factor is given the end of the page.

PV annuity factor of XOM: 25.10

Semiannual interest= (1000×3.5%)/2= 17.5

PV of annuity payments= 17.5×25.1= 439.25

PV of Par value= 1000×0.3724= 372.43

Total value= 439.25+372.43= 811.68

If the bond is selling at a discount which is 188.32$ lower than the par value.

There 4 key factors affect the bond price. The market interest rate is the main key factor. Other three key factors are Inflation, Credit rating of the bond, Maturity of the bond.

Notes:PV annuity factor:

= 25.10

PV of Par value= = =372.43

k= interest rate

n= Periods

References:

Brealey, R., & Myers, S. (2003). Capital investment and valuation. New York, NY [u.a.]: McGraw-Hill.

Crosby, N. (1983). THE INVESTMENT METHOD OF VALUATION: A REAL VALUE APPROACH: 1. Journal Of Valuation, 1(4), 341-350. http://dx.doi.org/10.1108/eb007937

Examining ExxonMobil’s Latest Bond Issuance - Market Realist. (2017). Marketrealist.com. Retrieved 7 December 2017, from http://marketrealist.com/2016/03/examining-exxonmobils-latest-bond-issue/