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Bond Price Formula:
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Bond price calculation determines the present value of all future cash flows from a bond, including coupon payments and the face value at maturity. It's essential for bond valuation and investment analysis in fixed income markets.
The calculator uses the bond pricing formula:
Where:
Explanation: The formula discounts all future cash flows (coupon payments and face value) back to their present value using the yield as the discount rate.
Details: Accurate bond pricing is crucial for investors, portfolio managers, and financial analysts to determine fair value, assess investment opportunities, and manage fixed income portfolios effectively.
Tips: Enter coupon payment in dollars, yield as percentage, number of periods, and face value in dollars. All values must be positive and periods must be at least 1.
Q1: What is the relationship between bond price and yield?
A: Bond price and yield have an inverse relationship. When yield increases, bond price decreases, and vice versa.
Q2: What is the difference between coupon rate and yield?
A: Coupon rate is the fixed interest rate paid on the bond's face value, while yield is the actual return considering the current market price.
Q3: How does time to maturity affect bond price?
A: Longer-term bonds are more sensitive to interest rate changes, meaning their prices fluctuate more for a given change in yield.
Q4: What happens when a bond is priced at par?
A: A bond is priced at par when its market price equals its face value, which occurs when the coupon rate equals the yield.
Q5: Can this calculator be used for zero-coupon bonds?
A: Yes, for zero-coupon bonds, set the coupon payment to zero and the calculator will only discount the face value.