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 the cash flows that the security will generate in the future.

A consistent and predictable relationship exists between a bonds coupon rate, its par value, a bondholders required return, and its resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bonds intrinsic and par values. This also results from the relationship between a bonds coupon rate and a bondholders required rate of return.

Remember, a bonds coupon rate partially determines the interest-based return that a bond __Might/Will_ pays and a bondholders required return reflects the return that a bondholder _Is Obligated/ would like__ to receive from a given investment.

The mathematics of bond valuation implies a predictable relationship between the bonds coupon rate, the bondholders required return, the bonds par value, and its intrinsic value. These relationships can be summarized as follows:

	When the bonds coupon rate equals the bondholders required return, the bonds intrinsic value will equal its par value, and the bond will trade at par.
	When the bonds coupon rate is greater than the bondholders required return, the bonds intrinsic value will __Equal/ be less than/ exceed__ its par value, and the bond will trade at a premium.
	When the bonds coupon rate is less than the bondholders required return, the bonds intrinsic value will be less than its par value, and the bond will trade at _Par/ a discount/ a premium____.