1. What is Bond Price?

The current bond price is the present value of all future cash flows expected from the bond (coupon payments and face value at maturity), discounted at the bond's yield to maturity. It represents what investors are willing to pay for the bond in the market.

2. How Does the Calculator Work?

The calculator uses the bond pricing formula:

Where:

• \( P \) — Current bond price
• \( C \) — Periodic coupon payment
• \( F \) — Face value of the bond
• \( r \) — Periodic yield to maturity
• \( n \) — Total number of periods

Explanation: The formula discounts all future cash flows (coupons and principal) back to present value using the yield to maturity as the discount rate.

3. Importance of Bond Pricing

Details: Bond pricing is essential for investors to determine fair value, assess investment opportunities, and manage fixed income portfolios. It helps compare bonds with different characteristics.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why does bond price change inversely with yield?
A: As market interest rates rise, existing bonds with lower coupon rates become less attractive, so their prices fall to compensate new buyers.

Q2: What's the difference between coupon rate and yield?
A: Coupon rate is fixed and determines the periodic payment amount. Yield reflects current market return expectations and changes over time.

Q3: What happens when bond price equals face value?
A: When price equals face value, the bond is trading "at par" and its yield equals the coupon rate.

Q4: How does payment frequency affect bond price?
A: More frequent payments increase the bond's effective return slightly due to faster reinvestment of coupons.

Q5: What are zero-coupon bonds?
A: Bonds that pay no coupons and are issued at a deep discount, with the return coming entirely from price appreciation to face value.