1. What is the Treasury Bond Pricing Formula?

The Treasury Bond Pricing Formula calculates the present value of all future cash flows from a bond, including coupon payments and the par value at maturity. It's fundamental for determining the fair price of fixed-income securities.

2. How Does the Calculator Work?

The calculator uses the bond pricing formula:

Where:

• \( Coupon \) — Periodic coupon payment (currency)
• \( Yield \) — Periodic yield (decimal)
• \( t \) — Period number (1 to n)
• \( Par \) — Par value at maturity (currency)
• \( n \) — Total number of periods to maturity

Explanation: The formula discounts all future cash flows back to present value using the bond's yield to maturity.

3. Importance of Bond Pricing

Details: Accurate bond pricing is essential for investors to determine fair value, assess investment opportunities, and manage fixed-income portfolios effectively.

4. Using the Calculator

Tips: Enter coupon payment in currency units, yield as a decimal (e.g., 0.05 for 5%), periods as integers, par value in currency, and maturity periods. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between yield and coupon rate?
A: Coupon rate is the fixed interest rate on the bond, while yield reflects the current market rate of return for similar bonds.

Q2: Why does bond price move inversely to yield?
A: As market yields rise, existing bonds with lower coupon rates become less attractive, so their prices fall to match the new yield environment.

Q3: How does maturity affect bond price?
A: Longer-term bonds are more sensitive to interest rate changes, experiencing greater price volatility for a given yield change.

Q4: What happens when yield equals coupon rate?
A: When yield equals coupon rate, the bond typically prices at par value.

Q5: How often are coupon payments made?
A: Most Treasury bonds pay semiannual coupons, but this calculator can handle any payment frequency by adjusting the inputs accordingly.