The Market Value of a Bond is the current value of the bond's cash flows that includes coupons and principals,discounted at an appropriate rate of interest. There is a formula that is used to make the calculation method easy while evaluating the Market Value of a Bond. This process is to assume a particular rate for all the cash flows.
Difference and relation between a bond value and a bond price
There is a basic difference between the Market Value of a Bond and the price of a bond. The Market Value of a Bond is the face value which is pre-settled. It has been observed that the Market Value of a Bond is normally $1000 while instruments in money market are valued much higher. The price of a bond on the other hand is the price the investor pays to buy the bond.
The yield-to-maturity or YTM is short works in a distinct way. It is the yield which equalizes the present value of the entire cash flows from the Market Value of a Bond to the price of a bond. This process is a repeating calculation which is accounted for the reinvestments of all the coupons and also any monetary loss or gain on the price of the bond. This will be delivered by the issuer of the bond at $100 pa. On the other hand ,given the Yield-to-Maturity a price can be measured. If the YTM rises the price decreases, while the reverse makes the price to go up.
Duration:
Duration plays a vital role in evaluating the Market Value of a Bond. It is the measurement of the average term-to-maturity of the bond. The Market Value of a Bond depends largely on the amount of the flow of cash,the cash flow timing and the interest rates that are used for discounting. Duration also plays a part in summarizing the variables in a single number.