Bond valuation

The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of its future cash flows.

A bond's coupon rate determines the interest$-$based return that a bond that a bondholder receive from the investment. pay, and a bondholder's required rate of return reflects the return Bond valuation implies a relationship between the bondholder's required rate of return, the bond's coupon rate, and the bond's par value. These relationships can be summarized as follows: