Coupon Accepted Successfully!

Basic Bond Pricing


Discount at constant rate applied to all cash flows (YTM) to find all future cash flows' PV

Treat each cash flow as a single zero-coupon bond & find PV of each bond using appropriate spot rates for each cash flow. Prices must be the same to prevent arbitrage.




Callable Bond Value = Value of Option free bond – value of embedded call option.



What is the market price of a ten year, $1,000 bond with a 5% coupon paid annually,
if the bond's yield-to-maturity is 6%?


= 50/1.061 + 50/1.062 +……….+1050/1.0610 
= 926.40

Using Calculator:
Y=6%, T=10, PMT=50, FV=1000
CMP PV -> -926.40






Test Your Skills Now!
Take a Quiz now
Reviewer Name