Remember the cash flows of a bond are impacted by the coupon rate and it is the present value of the bond that is impacted by the yield of the bond or the market yield. Check the table belowâ€¦

In the above instance, the coupon rate and the bond yield are at 5%. That is the reason the market price of the bond is the same as the face value. Look at the cash flows over 8 half yearly periods over a period of 4 years. The interest rates are being discounted at the same rate as the coupon rate. Thus the future value of the coupon is cancelled out by the present value of the bonds and the sum of the present values adds up to exactly the face value of the bond.

Remember the cash flows of a bond are impacted by the coupon rate and it is the present value of the bond that is impacted by the yield of the bond or the market yield. Check the table belowâ€¦

InputsRate Convention: 1 = EAR, 0 = APR

0

Annual Coupon Rate (CR)

5.0%

Yield to Maturity (Annualized) (y)

5.0%

Number of Payments / Year (NOP)

2

Number of Periods to Maturity (T)

8

Face Value (FV)

? 1,000

OutputsDiscount Rate / Period (RATE)

2.5%

Coupon Payment (PMT)

? 25

Calculate Bond Price using the Cash FlowsPeriod

0

1

2

3

4

5

6

7

8

Time (Years)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Cash Flows

? 25.00

? 25.00

? 25.00

? 25.00

? 25.00

? 25.00

? 25.00

? 1,025.00

Present Value of Cash Flow

? 24.39

? 23.80

? 23.21

? 22.65

? 22.10

? 21.56

? 21.03

? 841.27

Bond Price

? 1,000.00