# Calculate the Value of a Coupon Paying Bond

The value of a coupon paying bond is calculated by discounting the future payments (coupon and principal) by an appropriate discount rate.

Suppose you have a bond with a \$1,000 face value that matures 1 year from today. The coupon rate is 12% and the bond makes semi-annual coupon payments of \$60. The bond yield is 13%. The cash flows from the bond are depicted below: The bond characteristics are summarized below:

• Par Value =     \$1,000
• Yield        =      13% annual (13/2 =6.5% semi-annual)
• Coupon   =      12% with semi-annual payment of \$60
• Maturity   =      1 year

The value of the bond is calculated as follows: Note that the coupon is paid semi-annually, i.e., \$60 per 6 months. The discounting is also done semi-annually. The general bond pricing formula for all bonds can be stated as: Where:

• Pi =  the price of the bond i
• Ct = cash flow from the bond i at time t
• ri = the annualized yield to maturity on bond i
• M = the time in years until the bond matures
Try our courses on Data Science for Finance. JOIN FREE

This site uses Akismet to reduce spam. Learn how your comment data is processed.