LawAccord
Bond Valuation Calculator
Determine the fair price of a bond based on its cash flows.
Understanding Bond Valuation
What is Bond Valuation?
Bond valuation is the process of determining the fair price of a bond. The theoretical fair value of a bond is the present value of the stream of cash flows it is expected to generate. This includes all future coupon payments and the face value (principal) paid at maturity. Discounting these future cash flows by the current market interest rate (YTM) gives the bond’s intrinsic value.
Key Terms & Price Relationship
- Face Value (Par): The amount the bond issuer will pay the bondholder at maturity.
- Coupon Rate: The fixed interest rate the issuer pays to the bondholder, based on the face value.
- Yield to Maturity (YTM) / Market Rate: The total return an investor can expect if they hold the bond until maturity. This is the rate used to discount the bond’s cash flows.
- Premium, Discount, Par:
- If **Coupon Rate > YTM**, the bond sells at a **Premium** (Price > Face Value).
- If **Coupon Rate < YTM**, the bond sells at a **Discount** (Price < Face Value).
- If **Coupon Rate = YTM**, the bond sells at **Par** (Price = Face Value).