1. What is Bond Intrinsic Value?

The intrinsic value of a bond is the present value of all future cash flows (coupon payments and principal repayment) discounted at the bond's yield to maturity. It represents the theoretical fair value of the bond.

2. How Does the Calculator Work?

The calculator uses the bond valuation formula:

Where:

• \( Coupon \) — Periodic coupon payment (USD)
• \( r \) — Yield to maturity (decimal)
• \( t \) — Each period until maturity
• \( Par \) — Face value of the bond (USD)
• \( n \) — Total periods until maturity

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

3. Importance of Bond Valuation

Details: Calculating intrinsic value helps investors determine if a bond is overpriced or underpriced in the market, informing buy/sell decisions and portfolio management.

4. Using the Calculator

Tips: Enter coupon payment per period, yield to maturity as a decimal (e.g., 0.05 for 5%), total periods until maturity, and the bond's face value. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between yield and coupon rate?
A: Coupon rate is the fixed interest rate on the bond, while yield reflects current market returns and changes with price fluctuations.

Q2: How does yield affect bond price?
A: They have an inverse relationship - when yields rise, bond prices fall, and vice versa.

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

Q4: Why does a bond's price change over time?
A: Due to changes in market interest rates, credit risk perception, and time value of money as maturity approaches.

Q5: What does it mean when IV > market price?
A: The bond may be undervalued, representing a potential buying opportunity.