Question 1

What is bond pricing and how is it calculated?

Accepted Answer

Bond pricing determines the fair value of a bond by discounting future cash flows (coupon payments and principal) to present value using the yield to maturity. The price moves inversely to interest rates - when rates rise, bond prices fall.

Question 2

What is YTM (Yield to Maturity)?

Accepted Answer

YTM is the total return expected on a bond if held until maturity. It accounts for coupon payments, principal repayment, and the difference between purchase price and face value. YTM is the discount rate that makes the bond's present value equal to its price.

Question 3

What is duration and why does it matter?

Accepted Answer

Duration measures a bond's sensitivity to interest rate changes. Higher duration means greater price volatility when rates change. Modified duration estimates the percentage price change for a 1% change in yield. It helps investors manage interest rate risk.

Question 4

What is convexity?

Accepted Answer

Convexity measures how duration changes as yields change. It provides a more accurate estimate of price sensitivity, especially for larger yield changes. Positive convexity is generally desirable as it means bond prices increase more when rates fall than they decrease when rates rise.

Question 5

What types of bonds can I analyze?

Accepted Answer

Our calculator supports 7 bond types: zero-coupon, fixed-rate, floating-rate, callable, puttable, convertible, and perpetual bonds. Each type has unique characteristics that affect pricing and risk.

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