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Bond Issue Price Formula:
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The bond issue price is the present value of all future cash flows from the bond, including coupon payments and the face value at maturity, discounted at the required yield to maturity. It represents the fair market price at which the bond should be issued.
The calculator uses the bond pricing formula:
Where:
Explanation: The formula calculates the present value of all future cash flows, summing the discounted coupon payments and the discounted face value at maturity.
Details: Accurate bond pricing is essential for issuers to determine appropriate offering prices, for investors to make informed investment decisions, and for financial professionals to value bond portfolios correctly.
Tips: Enter coupon payment in dollars, yield as a percentage (e.g., enter 5 for 5%), number of periods, and face value in dollars. All values must be positive numbers.
Q1: What is the relationship between yield and bond price?
A: Bond prices and yields have an inverse relationship. When yields increase, bond prices decrease, and vice versa.
Q2: How does time to maturity affect bond price?
A: Longer-term bonds are more sensitive to interest rate changes. Their prices fluctuate more than shorter-term bonds for the same yield change.
Q3: What is the difference between coupon rate and yield?
A: Coupon rate is the fixed interest rate based on face value, while yield reflects the actual return based on the current market price.
Q4: When is a bond issued at par, discount, or premium?
A: A bond is issued at par when coupon rate equals yield, at discount when coupon rate is less than yield, and at premium when coupon rate exceeds yield.
Q5: How do semi-annual coupons affect the calculation?
A: For semi-annual coupons, divide the annual coupon by 2, use half the annual yield, and double the number of periods.