Bond valuation

Bond valuation is the process of pricing a bond as the present value of its future coupon payments plus the repayment of face value at maturity, all discounted at the prevailing market yield.

ByHoang TruongUpdated June 30, 2026

FrameworkBond pricing

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A €1,000 bond paying a 5% annual coupon (€50) for three years, priced at a 6% market yield, is worth the present value of its coupons plus the present value of its face value: €134 + €840 = €974. Because the coupon rate is below the market yield, the bond trades at a discount to its €1,000 face value.

Where it fits

SubjectCorporate FinanceCoreTopicBond & Equity ValuationCore

The formula

LaTeX

P = \sum_{t=1}^{n} \frac{C}{(1+y)^t} + \frac{FV}{(1+y)^n}

Variables

$C$: periodic coupon payment (coupon rate × face value, adjusted for payment frequency) (€)
$y$: market yield per period (annual yield adjusted for payment frequency) (decimal)
$t$: period number
$F V$: face value (par value) repaid at maturity (€)
$n$: total number of periods to maturity

A bond trades at par when y equals the coupon rate, at a discount when y exceeds it, and at a premium when y falls below it.

Check yourself

PracticeCORE

A three-year bond has a face value of €1,000 and an annual coupon rate of 4%. The current market yield is 6%. Without performing the full discounting calculation, what can be inferred about the bond's market price?

Select an answer to check your understanding.