1. What is the Government Bond Price Formula?

The Government Bond Price formula calculates the present value of a zero-coupon bond based on its face value, yield, and time to maturity. It shows the current price you should pay for a bond that will pay its face value at maturity.

2. How Does the Calculator Work?

The calculator uses the bond pricing formula:

Where:

• \( Face \) — The bond's face value (currency)
• \( yield \) — The annual yield (decimal)
• \( maturity \) — Time to maturity in years

Explanation: The formula discounts the bond's face value back to present value using the yield as the discount rate.

3. Importance of Bond Pricing

Details: Accurate bond pricing is crucial for investors to determine fair value, assess investment opportunities, and manage fixed income portfolios.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between yield and coupon rate?
A: Yield reflects current market conditions while coupon rate is fixed at issuance. For zero-coupon bonds, the coupon rate is 0%.

Q2: How does maturity affect bond price?
A: Longer maturities make bond prices more sensitive to yield changes (higher duration).

Q3: What are typical government bond yields?
A: Varies by country and economic conditions, typically ranging from 0.5% to 10% in most developed markets.

Q4: Does this work for coupon-paying bonds?
A: This calculator is for zero-coupon bonds. Coupon bonds require summing present values of all future cash flows.

Q5: Why do bond prices fall when yields rise?
A: Existing bonds become less attractive as new bonds are issued at higher yields, so their prices adjust downward.