Bond Valuation

### Section: Bond Valuation Estimated study time: 45 minutes Content: Exam weight (2026 curriculum): Fixed Income — 11–14% of the CFA Level I exam (tied second-highest with Equity Investments and Financial Statement Analysis). Source: CFA Institute Level I Exam page, fetched 2026-06-29. Bond valuation is the quantitative foundation for the Fixed Income topic area and connects directly to yield measures, duration, and convexity tested throughout. A bond's value equals the present value of its expected cash flows — the periodic coupon payments and the par value at maturity — discounted at the appropriate market interest rate (the required yield). The bond pricing formula is: Price = Σ [C / (1 + r)^t] + [FV / (1 + r)^N], where C is the coupon payment per period, r is the required yield per period, FV is the face value (par), and N is the total number of periods. For a bond paying semiannual coupons (the standard for U.S. Treasury and corporate bonds), C = annual coupon / 2, r = annual yield / 2, and N = years to maturity × 2. When the required yield equals the coupon rate, the bond trades at par. When the required yield exceeds the coupon rate, the bond trades at a discount (below par). When the required yield is below the coupon rate, the bond trades at a premium (above par). The relationship between price and yield is the fundamental inverse relationship in fixed income: when interest rates rise, bond prices fall; when rates fall, prices rise. This relationship is not linear — it…