Price discounts promised cash
Coupon and principal payments are discounted at the required yield per coupon period to calculate clean value.
Fixed-rate bond valuation and risk
Price the cash flows and measure their rate sensitivity
Calculate clean and invoice price, accrued interest, current and implied yield, yield to call, duration, convexity, DV01, after-tax cash flow, inflation-adjusted return, and every coupon payment.
Plan with context
A bond’s coupon is only one component of its return and risk.
Price changes when required yield moves, and the promised cash flow remains exposed to credit, liquidity, call, reinvestment, inflation, and tax risk.
Dirty price is the invoice
The buyer generally pays clean price plus accrued interest earned by the seller since the previous coupon.
Yield and price move oppositely
When required yield rises, fixed cash flows are discounted more heavily and price falls; longer duration generally increases sensitivity.
Duration is a first-order estimate
Modified duration approximates the percentage price change for a small yield move, while convexity improves the estimate for larger moves.
Callability caps favorable outcomes
An issuer may redeem a callable bond before maturity, making yield to call a necessary companion to yield to maturity.
Credit is not in the formula
Present-value math assumes every coupon and principal payment arrives; it does not estimate default probability or recovery value.
Included
Fixed-rate coupons, four payment frequencies, position quantity, valuation yield, observed-price implied yield, accrued interest, call redemption, current yield, duration, convexity, DV01, tax, inflation, chart, and ledger.
Not included
Default, recovery, credit migration, floating coupons, day-count date calculations, embedded-option valuation, transaction spreads, reinvestment, tax-exempt treatment, or live market prices.
Use it well
Use settlement data from the trade confirmation, compare yield to maturity and call, review credit and covenants, and stress-test the position at higher market yields.