Talk:Bond pricing

The original intent was to show why bond price moves opposite of yield. It was interesting to see that it's an outcome of the Present Value (PV) of cash flows (Fabozzi, p. 53).

PV is fundamental to any investments, including bonds. It's not that much work to expand the PV concept to help investors understand how to choose the best investment. This is a very common question in the forum (which investment is better?). Having an easy to understand graph of why you need to use PV, along with a few worked examples, would help considerably. I'll probably split this out as a new page.

Before I go any further, I'd like to know if these graphs are OK to put in the wiki. PV = FV(1 + i)-N. My thinking is that (1 + i)-N could shown as a straight line for the graph as i and N are constants here. Changing the interest rate changes the slope of the line. For a single data point at FV, I think this case applies. (Actually, I worked backwards from the examples and came up with the graph. I'm rationalizing why this works.) I'm not interested in the absolute values of FV or PV in the graphs.

The worked examples (that's next) will have the correct numbers. The reader will use the graphs as a qualitative guide to determine if the calculated PV price is a good investment, i.e. is the PV above or below the purchase price, PV of investment for desired interest rate, PV of investment for required yield, etc.

--LadyGeek 03:28, 10 March 2010 (UTC)