Bond Valuation | Exam FM | Financial Mathematics Lesson 21 - JK Math

How to Value the Price of Bonds (Financial Mathematics Lesson 21)

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In this lesson we learn about bonds and how to calculate their price given its components of its face value, redemption value, coupon rate, and its yield rate. We discuss what each of these components are and their importance to the calculation of a bond’s price.
Bonds are similar to loans in that they are a way to borrow money. Essentially, a bond is a debt that typically requires periodic payments known as “coupons” for a stated term, as well as a one time payment of the amount borrowed at the end of the term issued. We use this definition of a bond to derive its price formula, which is the present value of the coupon payments plus the redemption value. We look at one example problem and discuss what it means to purchase a bond at either par value, at a discount, or at a premium.

This course is designed to help students understand the concepts of mathematics of investment and credit, as well as provide a starting point in preparation for the Actuarial Exam FM (Financial Mathematics).

Financial Mathematics requires a proficient understanding of Calculus concepts such as derivative and integration techniques. This implies that a solid understanding in various algebra skills, including manipulating equations, basic factoring methods, solving logarithmic equations, and more, are also required to fully comprehend and learn the concepts of the Financial Mathematics course.

Video Chapters:
0:00 What is a Bond?
0:49 Components of a Bond
5:02 Finding the Price Formula
8:51 Example Problem
15:48 Effects of Yield Rate & Coupon rate
18:32 Buying at Par, Discount, and Premium


📝 Examples Video:    • Bond Valuation Examples | Exam FM | F...  

⏩ Next Lesson:    • Market Price of Bonds | Exam FM | Fin...  

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