1. What is the Bond Price Formula?

The bond price formula calculates the present value of all future cash flows from a bond, including coupon payments and the face value at maturity. It discounts these cash flows using the required rate of return (yield to maturity).

2. How Does the Calculator Work?

The calculator uses the bond pricing 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 sums the present value of all coupon payments and adds the present value of the face value payment at maturity.

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, 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 change when interest rates change?
A: Bond prices and yields move inversely - 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, experiencing greater price volatility.

Q4: What does it mean when a bond trades at premium/discount?
A: Premium means price > face value (coupon > market rate), discount means price < face value (coupon < market rate).

Q5: Can this calculator be used for zero-coupon bonds?
A: Yes, simply enter 0 for coupon payment - the price will just be the discounted face value.