1. What is Bond Valuation?

Bond valuation is the process of determining the fair price of a bond. The current value of a bond is the present value of all expected future cash flows (coupon payments and face value at maturity) discounted at the bond's yield to maturity.

2. How Does the Calculator Work?

The calculator uses the bond valuation formula:

Where:

• \( C \) — Coupon payment (currency)
• \( r \) — Yield to maturity (decimal)
• \( t \) — Time period for each coupon payment
• \( F \) — Face value of the bond (currency)
• \( n \) — Years to maturity

Explanation: The formula calculates the present value of all future cash flows from the bond, discounted at the bond's yield to maturity.

3. Importance of Bond Valuation

Details: Bond valuation is essential for investors to determine whether a bond is overpriced or underpriced in the market. It helps in making informed investment decisions and portfolio management.

4. Using the Calculator

Tips: Enter coupon payment in currency units, yield as a decimal (e.g., 0.05 for 5%), number of coupon periods, face value, and years to maturity. All values must be positive.

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 reflects current market conditions and the bond's price.

Q2: Why does bond price change when yield changes?
A: Bond prices and yields have an inverse relationship - when yields rise, prices fall and vice versa.

Q3: What if the bond has semi-annual coupons?
A: Adjust the inputs - divide annual coupon by 2, use semi-annual yield (annual yield/2), and double the number of periods.

Q4: How accurate is this calculator?
A: It provides theoretical value for standard bonds. Real-world pricing may consider additional factors like credit risk and liquidity.

Q5: Can this be used for zero-coupon bonds?
A: Yes, set coupon payment to 0 and it will calculate based only on discounted face value.