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The present value of the bond's principal tells you its current worth based on the current market interest rate.  For this calculation, you need to know the current market interest rate.  Also, you need to know the length of time until the bond expires and the number of interest payments per year.  For example, suppose ABC Company issues 5-year, $500,000, 10% bonds.  Interest is paid semi-annually.  The current market interest rate is 12 percent. In this example, the current market interest rate is 12 percent. The length of time until the bond expires is 5 years. Divide the annual current market interest rate by the number of interest payments per year.  Using the example above, the annual market interest rate is 12 percent.  Interest payments are paid semi-annually, or twice per year.  The market rate per period is 6 percent (.12/2=.06){\displaystyle (.12/2=.06)}. Multiply the number of interest payments per year by the number of years until the bond reaches maturity.  This tells you how many interest payments will be made over the life of the bond.  In the above example, interest is paid out semi-annually, or twice per year.  The number of years until maturity is five.  The total number of interest payments is 5∗2=10{\displaystyle 5*2=10}. This is used to calculate the present value of the bond based on the current market interest rate.  The formula for PVIF is 1/(1+r)n{\displaystyle 1/(1+r)^{n}}.  In this formula, “r” is the interest rate per period.  Also, “n” is the total number of interest payments.  PVIF = 1/(1+.06)10=0.5584{\displaystyle 1/(1+.06)^{10}=0.5584}  Present value of the principal = principal * PVIF $500,000∗0.5584=$279,200{\displaystyle \$500,000*0.5584=\$279,200}
Gather the information. Calculate the current market interest rate for each payment period. Calculate the total number of interest payments. Calculate the Present Value Interest Factor (PVIF).