# What is an "undervalued" or "overvalued" bond?

Here's a small excerpt from Bond Valuation section on Investopedia:

Determining Whether a Bond Is Under or Over Valued What you need to be able to do is value a bond like we have done before using the more traditional method of applying one discount rate to the security. The twist here, however, is that instead of using one rate, you will use whatever rate the spot curve has that coordinates with the proper maturity. You will then add the values up as you did previously to get the value of the bond.

You will then be given a market price to compare to the value that you derived from your work. If the market price is above your figure, then the bond is undervalued and you should buy the issue. If the market price is below your price, then the bond is overvalued and you should sell the issue.

If the market price is above the bond value that you calculate then isn't the bond over-valued?? (literally speaking at least). Why would you want to buy the bond in this case when you know it is priced above its value?? I'm having some trouble understanding this concept

(I'm looking for an answer assuming the bonds are corporate bonds (if that makes any difference)

• They've described a technique for determining the value of a bond. Once you've done that, if the market value is higher than the value that you calculated, the bond is overvalued. If the market value is lower, the bond is undervalued. Sep 23, 2015 at 19:06
• What investopedia says is the opposite! So it's a mistake on the site? Sep 26, 2015 at 20:03
• Yes, it looks to me like they got it upside down. Sep 27, 2015 at 2:41
• Investopedia hasn't still updated this. Are we sure that it was a mistake on their part?
– user42654
May 27, 2016 at 9:38
• It's definitely a mistake. If market price is above the fair value you calculate, it's overpriced. Basic stuff. Investopedia is not as heavily moderated/edited as are posts here. I am a mod and frequent poster here. It's fair to say I know my stuff. Fortunately, when I make an error, another member will set me right within minutes. The wisdom of crowds in action. Here. Not so much there. May 27, 2016 at 12:11