Bond Calculator
This bond calculator prices a fixed-coupon bond by discounting its future cash flows back to today at the prevailing market rate, then reports the resulting price, the annual coupon dollars, and the current yield. A bond pays a fixed coupon each year and returns its face value at maturity, so when market rates rise above the coupon rate the bond trades below par (a discount), and when rates fall below the coupon it trades above par (a premium). Enter the face value, coupon rate, years to maturity, and market rate to value the bond.
Formula
Price = C·(1 − (1 + y)^−n)/y + F/(1 + y)^n
- F
- Face (par) value repaid at maturity
- C
- Annual coupon = face value × coupon rate ÷ 100
- y
- Market rate per year (decimal = market rate% ÷ 100)
- n
- Years to maturity
How it works
- Enter the face (par) value and the coupon rate; multiplying them gives the fixed annual coupon payment the bond makes each year.
- Enter the years to maturity and the current market interest rate (the required yield) used to discount the cash flows.
- The calculator sums the present value of all coupon payments plus the present value of the face value repaid at maturity to get the bond price, then divides the annual coupon by that price to show the current yield.
Worked example
A $1,000 face-value bond with a 5% coupon, 10 years to maturity, priced at a 6% market rate.
- Annual coupon = 1,000 × 5% = $50; market rate y = 0.06.
- PV of coupons = 50 × (1 − 1.06^−10) ÷ 0.06 = 50 × 7.3601 = $368.00.
- PV of face value = 1,000 ÷ 1.06^10 = $558.39; price = 368.00 + 558.39 = $926.40.
The bond is worth about $926.40, a discount to its $1,000 face value because the 6% market rate exceeds the 5% coupon. The current yield is roughly 5.4% (the $50 coupon divided by the $926.40 price).
Frequently asked questions
- Why does the bond price fall below face value here?
- When the market rate is higher than the coupon rate, investors will only buy the bond at a discount so its effective yield matches the market. In this example the 6% market rate exceeds the 5% coupon, so the price drops below the $1,000 par.
- What is the difference between coupon rate and current yield?
- The coupon rate is fixed against face value, while the current yield divides the annual coupon by the bond price you actually pay. When a bond trades at a discount the current yield is higher than the coupon rate, and at a premium it is lower.
- Does this calculate yield to maturity?
- No. It prices the bond from a given market rate and reports the current yield. Yield to maturity, which also captures the gain or loss from price returning to par at maturity, is a separate measure this tool does not solve for.