4-5 Bond pricing The price of a bond is the present value of all cash flows generated by the bond (i.e coupons and face value) discounted at the required rate of return cpn con cpn+ par PV= +,, (1+r)(1+r)2 (1+r) Irwin/McGraw-Hill CThe McGraw-Hill Companies, Inc, 2001©The McGraw-Hill Companies, Inc.,2001 4- 5 Irwin/McGraw-Hill Bond Pricing The price of a bond is the Present Value of all cash flows generated by the bond (i.e. coupons and face value) discounted at the required rate of return. PV cpn r cpn r cpn par r t = + + + + + + ( ) ( ) + .... ( ) 1 1 (1 ) 1 2