How does Value get rounded in figuring out Bonds Value?
With the formula you are using you assume that the issued bond (bond A) is a perpetual. Given the provided information, you can't really do more than this, it's only an approximation.  The difference could be explained by the repayment of the principal (which is not the case with a perpetual). I guess the author has calculated the bond value with principal repayment.  You can get more insight in the calculation from the excel provided at this website: http://breakingdownfinance.com/finance-topics/bond-valuation/fixed-rate-bond-valuation/
You haven't mentioned how much debt your example company has. Rarely does a company not carry any kind of debt (credit facilities, outstanding bonds or debentures, accounts payable, etc.) Might it owe, for instance, $1B in outstanding loans or bonds? Looking at debt too is critically important if you want to conduct the kind of analysis you're talking about.  Consider that the fundamental accounting equation says: or, But in your example you're assuming the assets and equity ought to be equal, discounting the possibility of debt.  Debt changes everything.  You need to look at the value of the net assets of the company (i.e. subtracting the debt), not just the value of its assets alone. Shareholders are residual claimants on the assets of the company, i.e. after all debt claims have been satisfied.  This means the government (taxes owed), the bank (loans to repay), and bondholders are due their payback before determining what is leftover for the shareholders. "&gt; I'd rather spend a little more money to sustain something that doesn't work while we figure out how to replace it   Which is what happening now... and what Trump wants...  &gt; than cut the cord and literally put the lives at millions at risk?  This did not happen, and this is not what Trump did or want to do.  &gt; Do you not value human life?  Everything you say is exaggerated and you totally get swept away due to political reasons.  Why one earth would you even think that me or Trump ""Do not value human life""?" "You have actually asked several questions, so I think what I'll do is give you an intuition about risk-neutral pricing to get you started.  Then I think the answer to many of your questions will become clear. Physical Probability There is some probability of every event out there actually occurring, including the price of a stock going up.  That's what we call the physical probability.  It's very intuitive, but not directly useful for finding the price of something because price is not the weighted average of future outcomes.   For example, if you have a stock that is highly correlated with the market and has 50% chance of being worth $20 dollars tomorrow and a 50% chance of being worth $10, it's value today is not $15.  It will be worth less, because it's a risky stock and must earn a premium.  When you are dealing with physical probabilities, if you want to compute value you have to take the probability-weighted average of all the prices it could have tomorrow and then add in some kind of compensation for risk, which may be hard to compute. Risk-Neutral Probability Finance theory has shown that instead of computing values this way, we can embed risk-compensation into our probabilities.  That is, we can create a new set up ""probabilities"" by adjusting the probability of good market outcomes downward and increasing the probability of bad market outcomes.  This may sound crazy because these probabilities are no longer physical, but it has the desirable property that we then use this set of probabilities to price of every asset out there: all of them (equity, options, bonds, savings accounts, etc.).  We call these adjusted probabilities that risk-neutral probabilities.  When I say price I mean that you can multiply every outcome by its risk-neutral probability and discount at the risk-free rate to find its correct price.    To be clear, we have changed the probability of the market going up and down, not our probability of a particular stock moving independent of the market.  Because moves that are independent of the market do not affect prices, we don't have to adjust the probabilities of them happening in order to get risk-neutral probabilities. Anyway, the best way to think of risk-neutral probabilities is as a set of bogus probabilities that consistently give the correct price of every asset in the economy without having to add a risk premium. If we just take the risk-neutral probability-weighted average of all outcomes and discount at the risk-free rate, we get the price.  Very handy if you have them. Risk-Neutral Pricing We can't get risk-neutral probabilities from research about how likely a stock is to actually go up or down.  That would be the physical probability.  Instead, we can figure out the risk-neutral probabilities from prices. If a stock has only two possible prices tomorrow, U and D, and the risk-neutral probability of U is q, then Price = [ Uq + D(1-q) ] / e^(rt) The exponential there is just discounting by the risk-free rate.  This is the beginning of the equations you have mentioned.  The main thing to remember is that q is not the physical probability, it's the risk-neutral one.  I can't emphasize that enough.  If you have prespecified what U and D can be, then there is only one unknown in that equation: q. That means you can look at the stock price and solve for the risk neutral probability of the stock going up.   The reason this is useful is that you can same risk-neutral probability to price the associated option.  In the case of the option you don't know its price today (yet) but you do know how much money it will be worth if the stock moves up or down.  Use those values and the risk-neutral probability you computed from the stock to compute the option's price.  That's what's going on here.  To remember: the same risk-neutral probability measure prices everything out there.  That is, if you choose an asset, multiply each possibly outcome by its risk-neutral probability, and discount at the risk-free rate, you get its price.  In general we use prices of things we know to infer things about the risk-neutral probability measure in order to get prices we do not know." No, they are not recession proof.   Assume several companies, that issued bonds in the fund, go bankrupt.  Those bonds could be worthless, they could miss principle payments, or they could be restructured.  All would mean a decline in value. When the economy shrinks (which is what a recession is) how does the Fed respond?  By lowering interest rates.  This makes current bonds more valuable as presumably they were issued at a higher rate, thus the recession proof prejudice.  However, there is nothing to stop a company (in good financial shape) from issuing more bonds to pay the par value on high-interest bonds, thus refinancing their debt.  Sort of like how the bank feels when one refinances the mortgage for a lower rate.   The thing that troubles me the most is that rates have been low for a long time.  What happens if we have a recession now?  How does the Fed fix it?  I am not sure exactly what the fallout would be, but it could be significant. If you are troubled, you should look for sectors that would be hurt and helped by a Trump-induced recession.  Move money away from those that will be hurt.  Typically aggressive growth companies are hurt (during recessions), so you may want to move money away from them.  Typically established blue chip companies fare okay in a recession so you may want to move money toward them.  Move some money to cash, and perhaps some towards bonds.   All that being said, I'd keep some money in things like aggressive growth in case you are wrong. It's not compound interest. It is internal rate of return.  If you have access to Excel look up the XIRR built-in function. "Like all financial investments, the value of a bond is the present value of expected future cash flows.  The Yield to Maturity is the annualized return you get on your initial investment, which is equivalent to the discount rate you'd use to discount future cash flows. So if you discount all future cashflows at 6% annually*, you can calculate the price of the bond: So the price of a $1,000 bond (which is how bond prices are typically quoted) would be $1,097.12. The current yield is just the current coupon payment divided by the current price, which is 70/1,097.12 or 6.38% Question 3 makes no sense, since the yield to maturity would be the same if you bought the bond at market price Question 4 talks about a ""sale"" date which makes me think that it assumes you sold the bond on the coupon date, but you'd have to know the sale price to calculate the rate of return." I'll get to my answer in a moment, but first need to put focus on the two key components of bond prices: interest rates and credit risk. Suppose that the 10-year treasury has a coupon of 2% per year (it would be paid as 1% twice per year, in reality). If you own one contract of the bond which we suppose has a so-called face-value of $100, then this contract will over the ten years pay you a total of $20 in coupons, then $100 at redemption. So $120 in total. Would you therefore buy this 10-year treasury bond for $120, or more, or less? Well, if there were bank accounts around which were offering you an interest rate of 2% per year fixed for the next 10 years, then you could alternatively generate $120 from just $100 deposited now (if we assume that the interest paid is not put back in the account to earn 2% per year). Consequently, a price of $100 for the treasury would seem about right. However, suppose that you are not very confident that the banks that offer these accounts will even be around in 10 years time, maybe they will fail before that and you'll never get your money back. Then you might say to yourself that the above calculation is mathematically right, but not really a full representation of the different risks. And you conclude that maybe treasuries should be a bit more expensive, because they offer better credit risk than bank deposits.  All of this just to show that the price of bonds is a comparative valuation of rates and credit: you need to know the general level of interest rates available in other investment products (even in stocks, I'd say), you need to have a feel for how much credit risk there is in the different investment products. Most people think that 'normally' interest rates are positive, because we are so familiar with the basic principle that: if I lend you some money then you need to pay me some interest. But in a world where everyone is worried about bank failures, people might prefer to effectively 'deposit' our savings with the US treasury (by buying their bonds) than to deposit their savings in the local bank. The US treasury will see this extra demand and put up the prices of their  bonds (they are not stupid at the US treasury, you know!), so maybe the price of the 10-year treasury will go above $120. It could, right? In this scenario, the implied yield on the 10-year treasury is negative. There you go, yields have gone negative because of credit risk concerns. Bonds have multiple points of risk: This is part of the time value of money chapter in any finance course.  Disclaimer - Duff's answer popped up as I was still doing the bond calculations. Similar to mine but less nerdy.