Bond Valuation
Price coupon and zero-coupon bonds with exam-ready workflows. Understand the inverse relationship between yields and bond prices. Bond math appears in corporate finance, investments, and CFA exams, making it one of the most frequently tested topics across finance courses.
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Study Tips
- ✓Break bond into coupon stream plus principal
- ✓Convert annual yield correctly for semi-annual coupons
- ✓Estimate direction before calculating
- ✓Remember par means coupon rate equals YTM
Common Mistakes to Avoid
Forgetting coupon frequency conversion and wrong exponent counts. Semi-annual coupons double n and halve r. Students also confuse current yield (annual coupon / price) with YTM, which accounts for capital gains or losses at maturity.
Bond Valuation FAQs
Common questions about bond valuation
Higher discount rates reduce the present value of all future cash flows from the bond. Since bond cash flows are fixed, their present value drops when the required return increases.
Coupon rate is the fixed annual interest as a percentage of face value, set at issuance. YTM is the total return if held to maturity, reflecting the current market price, coupon payments, and any capital gain or loss.
A zero-coupon bond has no coupon payments, so Price = Face Value / (1 + r)^n. It always trades at a discount to face value because the only cash flow is the par value received at maturity.
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