1. What is Bond Price?

The bond price is the present value of all future cash flows (coupon payments and face value) discounted at the 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:

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

Explanation: The formula calculates the present value of all future coupon payments and the face value payment at maturity, discounted by the required yield.

3. Importance of Bond Pricing

Details: Understanding bond pricing is crucial for investors to determine fair value, assess risk, and make informed investment decisions in fixed income securities.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why does bond price change inversely with yield?
A: When market interest rates rise, existing bonds with lower coupon rates become less attractive, so their prices fall to match the new higher yields.

Q2: What's the difference between coupon rate and yield?
A: Coupon rate is fixed and determines the periodic interest payment, while yield reflects current market conditions and the bond's price.

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

Q4: How does maturity affect bond price?
A: Longer-term bonds are more sensitive to interest rate changes, experiencing greater price volatility for a given change in yields.

Q5: What is duration in bond pricing?
A: Duration measures a bond's sensitivity to interest rate changes, representing the weighted average time to receive all cash flows.