Question 1

How is a bond's value calculated?

Accepted Answer

By discounting its future coupon payments and face value to the present at the current market rate. The sum of those present values is the bond's price.

Question 2

Why do bond prices fall when interest rates rise?

Accepted Answer

A bond's coupons are fixed, so when new bonds pay more, the older bond is worth less to match the higher market yield. Its price drops below face value.

Question 3

What's the difference between coupon rate and yield?

Accepted Answer

The coupon rate is the fixed payment set at issue; the yield reflects the return at today's price. They match only when the bond trades exactly at face value.

What Is a Bond Worth?

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