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Bond Valuation

In: Financial Markets Efficiency and Economic Behaviour

Author

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  • Gian Maria Tomat

    (Bank of Italy)

Abstract

The two main forms of fixed income securities are discount, or zero-coupon, and coupon bonds. The term of a bond is its time to maturity. Discount bonds make a single payment at maturity. The yield to maturity is the discount rate that compounded makes the bond purchase price equal to its face value. Coupon bonds make payments at regularly spaced intervals until maturity. The yield to maturity of a coupon bond is the discount rate that equates the bond purchase price to the present discounted value of coupon and principal payments. The holding period return is the return obtained holding a bond for a period of time shorter than the term. The duration of a bond is a function of coupon and principal payments and measures the elasticity of the purchase price with respect to the gross yield. The tax structure on various capital income components determines a bond pricing.

Suggested Citation

  • Gian Maria Tomat, 2023. "Bond Valuation," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Financial Markets Efficiency and Economic Behaviour, chapter 0, pages 65-75, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-031-36836-3_5
    DOI: 10.1007/978-3-031-36836-3_5
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