A bond’s price equals the present value of its expected future cash flows. The rate of interest used to discount the bond’s cash flows is known as the yield to maturity (YTM.)

How are coupon-paying bonds priced?

A coupon-bearing bond may be priced with the following formula:

Where:

C = the periodic coupon payment

y = the yield to maturity (YTM)

F = the bond’s par or face value

t = time

T = the number of periods until the bond’s maturity date