Bond Price Calculator
A bond is a fixed-income security — a loan from an investor to a borrower (government or corporation). The bond pays regular coupon payments and returns the face value at maturity. Bond prices move inversely to interest rates: when rates rise, bond prices fall.
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Tip: Duration measures a bond's sensitivity to interest rate changes. A bond with duration of 5 years will lose approximately 5% in price for every 1% rise in interest rates.
- 1Bond price = PV of all future cash flows discounted at YTM
- 2P = Σ[Coupon/(1+YTM)ᵗ] + Face Value/(1+YTM)ⁿ
- 3If YTM > coupon rate: bond trades at discount (price < face value)
- 4If YTM < coupon rate: bond trades at premium (price > face value)
$1,000 face, 5% coupon, YTM 6%, 10 years=Price = $926.40 (discount)Higher YTM → lower price
$1,000 face, 5% coupon, YTM 4%, 10 years=Price = $1,081.11 (premium)Lower YTM → higher price
| When... | Bond trades at... | Why |
|---|---|---|
| YTM = Coupon rate | Par (face value) | Cash flows exactly compensate |
| YTM > Coupon rate | Discount (<face) | Higher return needed → lower price |
| YTM < Coupon rate | Premium (>face) | Lower return accepted → higher price |
| Time to maturity increases | More price volatility | More cash flows affected by rate changes |
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Fun Fact
US Treasury bonds are considered the safest investment in the world because they are backed by the US government. The 10-year Treasury yield is the global benchmark for "the risk-free rate."
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