1. What is the UK Bond Price Equation?

The UK Bond Price equation calculates the present value of a bond based on its par value, yield, time to maturity, and coupon payments. It's fundamental for bond valuation in financial markets.

2. How Does the Calculator Work?

The calculator uses the bond price equation:

Where:

• \( Par \) — Face value of the bond (GBP)
• \( Yield \) — Annual yield to maturity (unitless)
• \( Time \) — Time to maturity in years
• \( Coupons \) — Total coupon payments (GBP)
• \( e \) — Base of natural logarithm (~2.71828)

Explanation: The equation discounts the par value by the yield over time and adds the coupon payments to determine the present value of the bond.

3. Importance of Bond Price Calculation

Details: Accurate bond pricing is essential for investors, portfolio managers, and financial analysts to make informed investment decisions and assess market value.

4. Using the Calculator

Tips: Enter par value in GBP, yield as a decimal (e.g., 0.05 for 5%), time in years, and total coupon payments in GBP. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between yield and interest rate?
A: Yield reflects the total return including price changes, while interest rate is just the coupon payment relative to par value.

Q2: How does time affect bond price?
A: Longer time generally means greater discounting of the par value, lowering the price (all else being equal).

Q3: What are typical UK bond yields?
A: UK government bond (gilt) yields vary but typically range between 0.5% to 5% depending on maturity and economic conditions.

Q4: Are coupons paid annually or semi-annually?
A: UK gilts typically pay coupons semi-annually, but this calculator uses total coupons for simplicity.

Q5: What about accrued interest?
A: This calculator provides clean price. For dirty price (including accrued interest), additional calculations would be needed.