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Bond Value Formula:
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Bond valuation is the process of determining the fair price of a bond. The value of a bond equals the present value of its expected future cash flows, which include periodic coupon payments and the face value at maturity.
The calculator uses the bond valuation formula:
Where:
Explanation: The formula discounts all future cash flows (coupons and face value) back to present value using the yield to maturity as the discount rate.
Details: Bond valuation helps investors determine whether a bond is overpriced or underpriced in the market, assess investment opportunities, and manage fixed-income portfolios effectively.
Tips: Enter the periodic coupon payment in dollars, yield to maturity as a decimal (e.g., 0.05 for 5%), number of periods until maturity, and the bond's face value. All values must be positive.
Q1: What's the difference between coupon rate and yield?
A: Coupon rate is fixed and determines the dollar amount of coupon payments. Yield reflects current market conditions and the bond's price.
Q2: How does yield affect bond price?
A: Bond prices move inversely to yields. When yields rise, bond prices fall, and vice versa.
Q3: What if the bond pays semi-annual coupons?
A: Adjust inputs accordingly - use semi-annual coupon amount, semi-annual yield (annual yield/2), and double the number of periods.
Q4: What does it mean if calculated value differs from market price?
A: Differences may indicate mispricing or reflect factors like credit risk, liquidity, or tax considerations not captured in this basic model.
Q5: How accurate is this calculator?
A: It provides a basic valuation. For callable/puttable bonds or those with complex features, more sophisticated models are needed.