How a bond is priced
A bond is a stream of future cash: a fixed coupon paid every period and the face value returned at maturity. Its fair price today is the present value of that stream — each payment is discounted back to now using the market yield, because a dollar received years from now is worth less than a dollar in hand.
The calculator discounts every coupon by the per-period yield, sums them, then adds the discounted face value. Together those two pieces make the price. Splitting them apart shows how much of the price comes from the income stream versus the eventual repayment of principal.
Premium, discount, or par
When the market yield equals the coupon rate the bond prices at par — exactly its face value. If the market yield falls below the coupon rate, the bond pays more than newer issues and trades at a premium above face value. If the yield rises above the coupon rate, the bond looks stingy by comparison and must trade at a discount to attract buyers.
The price-components chart shows the same idea visually: the share of value coming from coupons versus the return of face. Longer maturities and higher coupons push more weight onto the coupon slice.
Using the result
A few practical points when interpreting the price:
- Yield and price move in opposite directions — when yields rise, existing bond prices fall.
- The current yield shown is annual coupon divided by price; it is not the same as yield to maturity.
- Match the payment frequency to the actual bond — most corporate and government bonds pay semi-annually.
Caveats
This model assumes a single flat discount rate and ignores credit risk, taxes, accrued interest between coupon dates, and any call or put features. Real market prices reflect all of those and more, so treat the figure as a clean theoretical valuation rather than a quote, and seek professional advice before investing.
Formula
price = Σ coupon/(1+y)^t + face/(1+y)^n; y = yield/freq, coupon = face·couponRate/freq, n = years·freqFrequently asked questions
- Why is my bond worth less than face value?
- When the market yield is higher than the coupon rate, newer bonds pay more, so this bond must sell at a discount to remain competitive.