1. What is the Bond Price Formula?

The bond price formula calculates the present value of all future cash flows from a bond (coupon payments and face value at maturity), discounted at the required rate of return. It's fundamental for bond valuation in finance.

2. How Does the Calculator Work?

The calculator uses the bond pricing formula:

Where:

• \( C \) — Coupon payment (USD)
• \( r \) — Discount rate (as decimal)
• \( t \) — Time period (1 to n)
• \( F \) — Face value (USD)
• \( n \) — Total number of periods

Explanation: The formula discounts each future cash flow back to present value and sums them all to determine the fair price of the bond.

3. Importance of Bond Pricing

Details: Accurate bond pricing is essential for investors to determine fair value, assess yield, and make informed investment decisions in fixed income markets.

4. Using the Calculator

Tips: Enter coupon payment in USD, discount rate as percentage, number of periods, and face value in USD. All values must be valid (positive numbers, periods ≥1).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between coupon rate and discount rate?
A: Coupon rate is fixed and determines the periodic payment amount, while discount rate (yield) reflects current market conditions and risk.

Q2: Why does bond price change when interest rates change?
A: Bond prices and yields have an inverse relationship - when market rates rise, existing bonds with lower coupons become less valuable.

Q3: How does maturity affect bond price?
A: Longer-term bonds are more sensitive to interest rate changes (higher duration), resulting in greater price volatility.

Q4: What about zero-coupon bonds?
A: For zero-coupon bonds, set coupon payment to 0 and the price is just the discounted face value.

Q5: How often are coupon payments made?
A: Typically semi-annually, but this calculator assumes all periods are equal (adjust rate accordingly for different frequencies).