How to Price a Jumbo CD
- 1). Review the terms of your CD. The face value is the amount you invested. For this example, we will use a $100,000 face value. Assume a 5 percent return for the CD over a 12-month period. This means that the amount it is worth at the maturity date, termed the par value, is $105,000.
- 2). Examine the current market to see whether the interest rates are higher or lower than your CD terms. As a general rule, when interest rates are higher than yours, the market value of your CD goes down because investors can get a better rate elsewhere. If interest rates are down, your market value goes up because investors will pay more to get an investment offering higher returns.
- 3). Calculate the market value of your CD on the secondary market. If interest rates have skyrocketed to 10 percent, the adjusted par value would be $110,000. Divide the face value by the adjusted par value to get the market value: $100,000/$110,000=$90,909. This is what you can expect to sell it for on the secondary market.
If interest rates have dropped instead, to 3 percent for example, take the original par value and divide it by the adjusted par value: $105,000/$103,000= $101,941. The CD is trading at a premium (selling for more than its face value) and you can make money for selling it in the secondary market.
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