Valuing Bonds

The following formulas concern the price and return of U.S. government bonds.

• Coupon Payment
• Yield to Maturity
• Bond Equivalent Yield
• Market Price of Bond

Bond Terminology

Figures

• Face value (FV): The amount the issuer agrees to pay back at maturity.
• Coupon rate: The annual interest rate paid on the face value.
• Coupon payment (CPN): The annual interest rate paid on the face value.
• Yield to maturity (YTM): The per-period rate of return on a bond.
• Bond equivalent yield (BEY): An annualized figure of the bond's yield.

Classes

• Treasury bill: Zero coupon bond with maturity of up to 1 year.
• Treasury note: Coupon bond with maturity between 1-10 years.
• Treasury bond: Coupon bond with maturity over 10 years.

Coupon Payment

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Face value (FV)

Coupon rate

# payments/year

Calculate

CPN=

Yield to Maturity

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The yield to maturity (YTM) must satisfy:

Market price of bond (MP)

Face value (FV)

Coupon payment (CPN)

# periods (N)

Calculate

YTM=

Bond Equivalent Yield

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Yield to maturity (YTM)

# payments/year

Calculate

BEY=

Market Price of Bond

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If the bond's yield to maturity is known, you can calculate the market price as the present value of the coupon payments and the face value.

Yield to maturity (YTM)

Face value (FV)

Coupon payment (CPN)

# periods (N)

Calculate

MP=