Common Questions about the PRICE Formula
• What does the PRICE Formula do?
• How does the PRICE Formula work?
• What types of data can be used with the PRICE Formula?
How Can the PRICE Formula be Used Appropriately?
• Comparing the value of investment securities
• Calculating the fair value of an entity’s stock
• Calculating the optimal price for a product or service
• Determining the interest rate component of a debt instrument
How Can the PRICE Formula be Commonly Mistyped?
• Incorrectly entering the number of days as a fraction
• Incorrectly entering the annual rate for the risk-free security
• Using incorrect notation for the format of the resulting PRICE value
• Also mistyped as PRCE, PRIE, PRIC.
What Are Some Common Ways the PRICE Formula is Used Inappropriately?
• Using the wrong type of data for the PRICE Formula
• Inputting discount rates incorrectly
• Using the PRICE Formula to calculate investment returns
What Are Some Common Pitfalls When Using the PRICE Formula?
• Using a specific formulaic calculation for an investment decision rather than considering a variety of factors
• Not taking into consideration a security’s market volatility
• Not utilizing a terminal value when considering the price of an investment
What Are Common Mistakes When Using the PRICE Formula?
• enter the parameters in the incorrect order
• fail to subtract coupon payments from the security's current market price
• forgetting to multiply a security's yield by the number of days until maturity
What Are Common Misconceptions People Might Have With the PRICE Formula?
• The PRICE Formula only applies to stocks and not other investment vehicles
• The risk-free rate is the same for all securities
• The PRICE formula values only perfect information