Discus about Bond valuation in respect to Yield to maturity and Bond Duration.
Bond valuation is a technique which is used to determine the intrinsic or fair value of a bond. It is calculated as the sum of all the future expected cash flows of the bond. Cash flow of the bonds are in the form of coupons which may be annually or semi-annually paid and the maturity value which is at the end of the term of the bond.
This value of the bond depends on several factors such as the coupon rate, yield to maturity and term to maturity. Higher the coupon rate and term to maturity of a bond higher will be the bond price, whereas, the value of the bond is inversely proportional to its yield to maturity (YTM). Hence, bonds with YTM greater than coupon rate trade at a discount or a price less than its face value.
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