Bond Valuation

Bond valuation is the process of determining the fair value of a bond, which is a type of loan made by an investor to a borrower, typically a government or corporation. A bond pays interest, known as the coupon, over time and returns the principal amount at maturity. To value a bond, you consider its future cash flows (interest payments and principal), discounted back to their present value using a required rate of return. Factors affecting valuation include interest rates, the creditworthiness of the issuer, and the bond's time to maturity. Higher risk or lower interest rates generally decrease bond value.