1. What Is Issue Price Calculation?

The issue price calculation determines the present value of future cash flows from a bond or other financial instrument. It represents the fair price an investor should pay today for the expected future cash flows, discounted at an appropriate rate.

2. How Does The Calculator Work?

The calculator uses the present value formula:

Where:

• \( PV \) — Present value (issue price)
• \( CF_t \) — Cash flow at time t
• \( r \) — Discount rate (per period)
• \( t \) — Time period (usually years)

Explanation: The formula discounts each future cash flow back to its present value and sums them all to determine the fair issue price.

3. Importance Of Issue Price Calculation

Details: Accurate issue price calculation is crucial for bond issuers and investors to ensure fair pricing, proper yield determination, and compliance with financial regulations.

4. Using The Calculator

Tips: Enter future cash flows as comma-separated values (e.g., "100,100,100,1100" for a 3-year bond with 10% coupon and $1000 face value), the discount rate as a percentage, and select the currency.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between issue price and face value?
A: Face value is the nominal amount repaid at maturity, while issue price is what investors pay initially, which may be different due to market interest rates.

Q2: How does the discount rate affect issue price?
A: Higher discount rates result in lower present values, so bonds are issued at a discount when market rates are above the coupon rate.

Q3: What cash flows should be included?
A: Include all periodic interest payments and the principal repayment at maturity.

Q4: Can this be used for stocks?
A: The concept is similar for dividend discount models, but stock cash flows are typically perpetual and harder to predict.

Q5: What about zero-coupon bonds?
A: For zero-coupon bonds, there's only one cash flow (the face value at maturity), so the calculation simplifies to PV = FV/(1+r)^n.