Understanding Bond Valuation

Navigating the bond market requires understanding how a bond's value is determined. A bond is a loan from an investor to a borrower (like a corporation or government). The borrower pays periodic interest (coupons) and repays the loan's face value at maturity. While these terms are fixed, the bond's market price fluctuates. Our calculator helps you find this market price by discounting all future cash flows to their present value.

How to Use Our Calculator

Determine a bond's price in a few simple steps:

  • Settlement & Maturity Dates: Enter the date of purchase and the date the bond matures.
  • Face / Par Value: Input the bond's value at maturity (typically $1,000).
  • Coupon Rate (%): This is the fixed annual interest rate paid by the bond.
  • Market Rate / YTM (%): Enter the current yield to maturity for similar bonds in the market. This is the most critical factor for pricing.
  • Coupon Frequency: Select how often interest is paid (e.g., semiannually for most US bonds).

Click 'Calculate' to see the results, including a visual breakdown of the total price.

The Relationship Between Price and Yield

The core principle of bond valuation is the inverse relationship between a bond's price and its yield (the market interest rate). Our calculator quantifies this relationship:

  • Sells at a Discount: When the market rate is higher than your bond's coupon rate, the price will be below face value.
  • Sells at a Premium: When the market rate is lower than your bond's coupon rate, the price will be above face value.
  • Sells at Par: When the market rate is equal to the coupon rate, the price will match the face value.

Clean Price vs. Dirty Price Explained

When you buy a bond between coupon payments, the seller is owed the interest earned up to the sale date. This is why two prices exist:

  • Clean Price: The quoted price of the bond, excluding any accrued interest. This is what you'll typically see quoted by brokers.
  • Accrued Interest: The portion of the next coupon payment that belongs to the seller.
  • Dirty Price: The actual invoice price you pay, which is the Clean Price + Accrued Interest.

Understanding these financial concepts is crucial for making informed investment decisions. For other related calculations, consider our Finance Calculator or the Interest Rate Calculator.