The formula used for the valuation of bonds is shown below (if coupon payments are paid annually):
| where | CP | = | Annual coupon payment |
| i | = | Yield to maturity | |
| n | = | Number of payments (years) | |
| FV | = | Face value (par value) |
If coupon payments are paid semi-annually then:
As for bonds that pay coupon payments quarterly, then just replace 2 in the formula above with 4.
The following table shows some of the yield of bonds with their expected value respectively (assuming coupon payments are paid semiannually):
| Coupon Rate | Yield | Par Value | Bond Value |
| 10% | 8% | 1000 | 1197.93 |
| 10% | 10% | 1000 | 1000.00 |
| 10% | 12% | 1000 | 849.54 |
So, the higher the yield for a bond, the lower is the present value of the bond.
The dividend cover ratio gives an idea to external parties about the results of operation of a company that might drop leaving the amount of dividends to be paid from the result of the year unchanged or reduced.
Dividend cover ratio that is more than 1.0 (> 1.0) indicates that the ordinary dividends should be paid our for the year.
However, dividend cover ratio that is less then 1.0 (< 1.0) shows that the company is not earning enough profits to pay out as dividends. Therefore, the company is using past retained earnings to fund the dividends payment. This may be a danger sign for potential investors.
The dividend cover ratio is just the opposite of the payout ratio.
Payout ratio that is more than 1.0 (> 1.0) implies that retained earnings are being used to payout as dividends.
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