1. What is Bond Valuation?

Bond valuation is the process of determining the fair price of a bond. The current value of a bond is the present value of all its future cash flows, including coupon payments and the face value repaid at maturity.

2. How Does the Calculator Work?

The calculator uses the bond valuation formula:

Where:

• \( \text{Coupon} \) — Periodic coupon payment (USD)
• \( \text{Yield} \) — Yield to maturity (as decimal)
• \( t \) — Period number (1 to n)
• \( \text{Face} \) — Face value of bond (USD)
• \( n \) — Total number of periods

Explanation: The formula discounts all future cash flows back to present value using the bond's yield.

3. Importance of Bond Valuation

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

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between yield and coupon rate?
A: Coupon rate is fixed and determines the periodic payment, while yield reflects current market conditions and the bond's price.

Q2: How does yield affect bond price?
A: Bond prices and yields have an inverse relationship - when yields rise, bond prices fall, and vice versa.

Q3: What is face value?
A: Face value (or par value) is the amount repaid at maturity, typically $1,000 for corporate bonds.

Q4: What if the bond has semi-annual coupons?
A: Adjust the inputs - divide annual coupon by 2, use semi-annual yield, and double the number of periods.

Q5: What does current value tell me?
A: If current value > market price, the bond may be undervalued. If current value < market price, it may be overvalued.