1. What is Bond Price?

The bond price is the present value of all future cash flows (coupon payments and face value) discounted at the required rate of return. It represents what investors are willing to pay today for the bond's future payments.

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
• \( F \) — Face value (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 fair price.

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, period numbers, 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 periodic payment amount, while discount rate reflects current market yields and the bond's risk.

Q2: Why does bond price change when interest rates change?
A: Bond prices and interest rates have an inverse relationship - when rates rise, existing bond prices fall to offer competitive yields.

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

Q4: How does time to maturity affect bond price?
A: Longer-term bonds are more sensitive to interest rate changes, experiencing greater price volatility.

Q5: What's the difference between clean and dirty price?
A: Clean price excludes accrued interest, while dirty price includes it and is the actual transaction price.