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Bond Pricing Formula & Cash Flow Timeline | EasyCFA | Wall Street Uni

Bond Pricing: Formula, Timeline & PV Decomposition

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Interactive three-panel visualization connecting the bond pricing formula with cash flow timeline and present value decomposition. Hover over any payment to see its term in the formula and its contribution to bond price.

Fixed-Income Bond ValuationApplied223 views

Parameters

Payment Frequency

CCoupon Rate (%)%

015

rYield to Maturity (%)%

0.515

nMaturity (Years)years

230

Formula

\begin{aligned}PV &= \sum_{t=1}^{T} \frac{C/2}{(1+r/2)^t} + \frac{FV}{(1+r/2)^T} \\[6pt] PV &= \sum_{t=1}^{10} \frac{\$25.00}{(1+0.0300)^t} + \frac{\$1{,}000}{(1+0.0300)^{10}} \\[6pt] PV &= \$957.35\end{aligned}

Interactive Chart

Face Value

$1000

Coupon Rate

5.0%

YTM

6.0%

Frequency

Semi-Annual

Bond Price: $957.35

Discount

5yr · 10 periods

Cash Flow Timeline

Pricing Formula (hover cash flows to highlight)

PV =25.00 / (1 + 0.0300)^1+25.00 / (1 + 0.0300)^2+25.00 / (1 + 0.0300)^3+25.00 / (1 + 0.0300)^4+25.00 / (1 + 0.0300)^5+25.00 / (1 + 0.0300)^6+25.00 / (1 + 0.0300)^7+25.00 / (1 + 0.0300)^8+25.00 / (1 + 0.0300)^9+(25.00 + 1000) / (1 + 0.0300)^10

Bond Price: $957.35

Value Breakdown

Bond Price

$957.35

PV of Coupons$213.26

22.3%

PV of Principal$744.09

77.7%

Student Instructions:

Hover over any payment bar to see its matching term in the pricing formula
Blue bars = coupon payments, Green bars = principal repayment at maturity
Increase YTM and observe how the bond price drops below par (discount)
Try Zero-Coupon mode to see a pure discount bond with no periodic payments
Compare how much of the bond's value comes from coupons vs principal

Bond pricing is the application of present value concepts to a stream of future cash flows. Each coupon payment and the final principal repayment is discounted back to today using the yield to maturity (YTM) as the discount rate. The bond price is the sum of all these present values. Mathematically: PV = C₁/(1+r)¹ + C₂/(1+r)² + ... + (Cₜ + FV)/(1+r)ᵀ where each term represents one discounted cash flow.

Interactive charts are desktop only

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Study Aids

Common Mistakes

Avoid these frequent errors

Forgetting to adjust for payment frequency: Annual YTM must be divided by frequency

Using wrong number of periods: For semi-annual bonds over 5 years, n=10 not 5

Mixing up coupon rate and YTM: Coupon determines cash flow size, YTM determines discount rate

Not summing all terms: Bond price requires summing PV of EVERY cash flow including final principal

Assuming linear discounting: Discounting is exponential, not linear