1. What is Bond Price Calculation?

The bond price calculation determines the present value of all future cash flows from a bond (coupon payments and par value at maturity) discounted at the required rate of return. This fundamental finance concept helps investors evaluate bond investments.

2. How Does the Calculator Work?

The calculator uses the bond pricing formula:

Where:

• \( Coupon \) — Periodic coupon payment (USD)
• \( r \) — Discount rate per period (decimal)
• \( t \) — Payment period (1 to n)
• \( Par \) — Par value of the bond (USD)
• \( n \) — Number of periods to maturity

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 investment decisions, portfolio management, and understanding the relationship between interest rates and bond prices (inverse relationship).

4. Using the Calculator

Tips: Enter coupon payment in USD, discount rate as decimal (e.g., 0.05 for 5%), number of payment periods, par value in USD, and maturity 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 interest rates used to calculate present value.

Q2: Why does bond price change when interest rates change?
A: Bond prices move inversely to interest rates because future cash flows become more/less valuable when discounted at higher/lower rates.

Q3: What happens when coupon rate equals discount rate?
A: The bond will price at par value when coupon rate equals the discount rate.

Q4: How does maturity affect bond price sensitivity?
A: Longer maturity bonds have greater price sensitivity to interest rate changes (higher duration).

Q5: Can this calculator price zero-coupon bonds?
A: Yes, set coupon payment to 0 and it will calculate the discounted par value only.