1. What is Bond Valuation?

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 repaid at maturity.

2. How Does the Calculator Work?

The calculator uses the bond valuation formula:

Where:

• \( C \) — Coupon payment (USD)
• \( r \) — Discount rate (as decimal)
• \( t \) — Period number (1 to n)
• \( F \) — Face value of bond (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 bond's current worth.

3. Importance of Bond Valuation

Details: Accurate bond valuation helps investors determine if a bond is overpriced or underpriced in the market, assess investment opportunities, and manage fixed-income portfolios effectively.

4. Using the Calculator

Tips: Enter coupon payment in USD, discount rate as a percentage, number of periods, face value in USD, and total periods. All values must be positive numbers.

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 move inversely to interest rates?
A: When market rates rise, existing bonds with lower coupons become less attractive, so their prices fall to yield comparable returns.

Q3: What happens when bond price equals face value?
A: This occurs when the coupon rate equals the discount rate (yield to maturity). The bond is said to be trading at par.

Q4: How does time to maturity affect bond price?
A: Longer-term bonds are more sensitive to interest rate changes, experiencing greater price volatility.

Q5: What about zero-coupon bonds?
A: For zero-coupon bonds, simply use the face value component of the formula (set coupon payment to 0).