1. What is the Bond Value Formula?

The bond value formula calculates the present value of a bond that pays periodic coupon payments and returns the face value at maturity. It accounts for both the perpetuity-like nature of coupon payments and the present value of the face value payment.

2. How Does the Calculator Work?

The calculator uses the bond value formula:

Where:

• \( C \) — Coupon payment per period (USD)
• \( r \) — Periodic interest rate (decimal)
• \( F \) — Face value of the bond (USD)
• \( n \) — Number of periods until maturity

Explanation: The first term represents the present value of coupon payments as a perpetuity, while the second term adjusts for the finite life of the bond.

3. Importance of Bond Valuation

Details: Accurate bond valuation is crucial for investors to determine fair prices, assess investment opportunities, and manage fixed-income portfolios effectively.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between coupon rate and interest rate?
A: The coupon rate is fixed and determines the coupon payment, while the interest rate (yield) is market-determined and used for discounting.

Q2: How does bond value change with interest rates?
A: Bond prices move inversely to interest rates - when rates rise, bond values fall, and vice versa.

Q3: What happens when n approaches infinity?
A: The formula simplifies to C/r, which is the value of a perpetual bond (consol).

Q4: How do semi-annual coupons affect the calculation?
A: For semi-annual payments, divide the annual coupon by 2 and double the number of periods.

Q5: What's the relationship between bond value and face value?
A: At issuance, bond value typically equals face value. Over time, it fluctuates based on interest rate changes.