Wednesday, February 1, 2012

Bond Valuation Explained

How much should you be willing to pay for a bond? A bond's value is based on the future cash flows you will earn by owning the bond. Where do the future cash flows come from? They come from 1) the coupon payments which represent cash earnings for the holder of the bond, and 2) the repayment of principal ("face value" of the bond).

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