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 at maturity.

2. How Does the Calculator Work?

The calculator uses the bond valuation formula:

Where:

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

Explanation: The formula discounts each future cash flow back to present value using the discount rate and sums them all.

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, discount rate as percentage (e.g., 5 for 5%), 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 coupon rate and discount rate?
A: Coupon rate is fixed and determines the coupon payment amount. Discount rate is the investor's required rate of return, which may differ from the coupon rate.

Q2: Why does bond value change when interest rates change?
A: Bond prices move inversely to interest rates because future cash flows are discounted at different rates.

Q3: What happens when coupon rate equals discount rate?
A: The bond will trade at par value (face value) because the present value of cash flows equals the face amount.

Q4: How does time to maturity affect bond value?
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 payments to 0).