Bond Valuation Calculator

Bond Valuation Formula:

\[ Value = \sum_{t=1}^{n} \frac{C}{(1+r)^t} + \frac{F}{(1+r)^n} \]

Face Value (Par Value):

USD

Annual Coupon Rate:

Yield to Maturity:

Years to Maturity:

years

Coupon Frequency:

Bond Value:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Bond Valuation?

Bond valuation is the process of determining the fair price of a bond. It involves calculating the present value of a bond's future interest payments (coupons) and its value at maturity (face value), discounted at the bond's yield to maturity.

2. How Does the Calculator Work?

The calculator uses the bond valuation formula:

\[ Value = \sum_{t=1}^{n} \frac{C}{(1+r)^t} + \frac{F}{(1+r)^n} \]

Where:

\( C \) — Coupon payment per period
\( F \) — Face value of the bond
\( r \) — Periodic yield to maturity
\( n \) — Total number of periods
\( t \) — Each period number

Explanation: The formula discounts all future cash flows (coupon payments and face value) to their present value using the yield to maturity as the discount rate.

3. Importance of Bond Valuation

Details: Bond valuation helps investors determine whether a bond is overpriced or underpriced in the market, assess investment opportunities, and make informed decisions about buying or selling bonds.

4. Using the Calculator

Tips: Enter the bond's face value, annual coupon rate, yield to maturity, years to maturity, and coupon payment frequency. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between coupon rate and yield?
A: Coupon rate is the fixed interest rate the bond pays, while yield is the return investors demand given the bond's price and risk.

Q2: Why does bond price change when yield changes?
A: Bond prices and yields have an inverse relationship. When yields rise, existing bonds with lower coupon rates become less attractive, so their prices fall.

Q3: What does it mean when a bond trades at premium/discount?
A: A premium bond trades above face value (coupon rate > yield), while a discount bond trades below face value (coupon rate < yield).

Q4: How does frequency affect bond valuation?
A: More frequent coupon payments increase the bond's present value because cash flows are received sooner.

Q5: Can this calculator be used for zero-coupon bonds?
A: Yes, simply set the coupon rate to 0. The value will just be the present value of the face amount.