Estimation of Market Value of Compounding Bonds: An Innovative Technique

摘要

This article aims to highlight an error in the prevailing present value (PV) approach with compounding for the bonds evaluation. Currently, compounding is used on both determinants i.e. coupon payments as well as maturity value without any sound argument. In line with value maximization principle, the investors should prefer compounding than non-compounding bonds due early payment of interest and higher market. But the prevailing approach as cited in different international books proves to be misleading. Investors of bond markets as well as academia were confused to use this erroneous approach around the globe. The study refutes to use compounding on both determinants with evidences from real life for the estimation of market value of bonds and offers an innovative technique to measure the market value of bonds which could be implemented immediately.