A to Z of Excel Functions: The PRICE Function

Welcome back to our regular A to Z of Excel Functions blog.  Today we look at the PRICE function.

The PRICE function

Coupon bonds are bonds that pay interest prior to maturity and those interest payments are paid on a regular schedule which can occur either one, two or four times a year.  The PRICE function returns the price per $100 face value of such a security that pays periodic interest.

The PRICE function employs the following syntax to operate:

The PRICE function has the following arguments:

• settlement: this represents the security's settlement date.  The security settlement date is the date afterthe issue date when the security is traded to the buyer
• maturity: this is the security's maturity date, i.e. when the security expires
• rate: also required, this is the security’s annual coupon rate
• yield: also mandatory, this represents the security’s annual yield
• redemption: also necessary.  This is the security’s redemption value per $100 face value
• frequency: The number of coupon payments per year.  For annual payments, frequency is 1; for semiannual, frequency is 2; for quarterly, frequency is 4.  These are the only options (see below)
• basis: the type of day count basis to use.  This is optional.  There are five options:

It should be further noted that:

• Microsoft Excel stores dates as sequential serial numbers so they can be used in calculations. By default, January 1, 1900 is serial number 1, and January 1, 2008 is serial number 39448 because it is 39,448 days after January 1, 1900
• dates should be entered using the DATE function, or as results of other formulae or functions.  For example, use =DATE(2020,2,29) for the 29^th of February, 2020.  Problems may occur if dates are entered as text
• the settlement date is the date a buyer purchases a coupon, such as a bond.  The maturity date is the date when a coupon expires.  For example, suppose a 30-year bond is issued on January 1, 2008, and is purchased by a buyer six months later.  The issue date would be January 1, 2008, the settlement date would be July 1, 2008, and the maturity date would be January 1, 2038, 30 years after the January 1, 2008, issue date
• settlement, maturity, frequency and basis are truncated to integers
• if settlement or maturity is not a valid date, PRICE returns the #VALUE! error value
• if yield < 0 or if rate < 0, PRICE returns the #NUM! value
• if redemption ≤ 0, PRICE returns the #NUM! value
• if frequency is any number other than 1, 2, or 4, PRICE returns the #NUM! error value
• if basis < 0 or if basis > 4, PRICE returns the #NUM! error value
• if settlement ≥ maturity, PRICE returns the #NUM! error value.

There are two computations used with this function.  When N, the number of coupons payable between the settlement date and the redemption date, is greater than one [1], PRICE is calculated as follows:

where:

• DSC = number of days from settlement to next coupon date
• E = number of days in coupon period in which the settlement date falls
• A = number of days from beginning of coupon period to settlement date.

When N is equal to one [1], PRICE is calculated as follows:

This assumes the same variables as above.

Please see my example below: 

We’ll continue our A to Z of Excel Functions soon.  Keep checking back – there’s a new blog post every other business day.

A full page of the function articles can be found here.