1. What is a Coupon Bond Price?

The coupon 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 should pay for the bond given its characteristics and current market conditions.

2. How Does the Calculator Work?

The calculator uses the bond pricing formula:

Where:

• \( C \) — Coupon payment ($)
• \( r \) — Discount rate (decimal)
• \( t \) — Period number
• \( FV \) — Face value ($)
• \( n \) — Years to maturity

Explanation: The formula discounts each future cash flow back to present value and sums them to determine the fair price of the bond.

3. Importance of Bond Pricing

Details: Accurate bond pricing is essential for investors to make informed decisions, assess yields, and compare different fixed-income securities.

4. Using the Calculator

Tips: Enter coupon payment in dollars, discount rate as decimal (e.g., 0.05 for 5%), number of periods, face value in dollars, and years to maturity. 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 coupon payment, while discount rate reflects current market conditions and investor expectations.

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 match new bonds' higher 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 maturities make bonds more sensitive to interest rate changes, resulting in greater price volatility.

Q5: What's the difference between clean and dirty bond price?
A: Clean price excludes accrued interest, while dirty price includes it. This calculator computes the dirty price.