1. What is Bond Valuation?

Bond valuation is the process of determining the fair price of a bond. The current value represents the present value of all future cash flows (coupon payments and face value) discounted at the required rate of return.

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 to determine the bond's current worth.

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 make informed buying/selling decisions.

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 is the investor's required return that changes with market conditions.

Q2: Why does bond price change when interest rates change?
A: The discount rate in the formula changes, affecting the present value of future cash flows.

Q3: What happens when a bond's price equals its face value?
A: The bond is trading at par, meaning its yield equals its coupon rate.

Q4: How does time to maturity affect bond value?
A: Longer maturities make bonds more sensitive to interest rate changes (higher duration).

Q5: Can this calculator be used for zero-coupon bonds?
A: Yes, simply set coupon payment to 0 and it will calculate based only on face value.