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)

I think the graphs are OK. The reason for this type of graph is because I can't get any insight out of a simple horizontal time line, such as the one shown on Investopedia. If you need to show a high/low or increase/decrease comparison, at least make it go on the Y-axis. I'm focusing on investment comparison now. When done, I'll move the material to a new Comparing Investments page. Then, back to bonds. --LadyGeek 02:36, 11 March 2010 (UTC)

A reference thread for yield (new page): Distribution Yield vs Yield to Maturity --LadyGeek 19:16, 4 April 2010 (UTC)

LadyGeek, this page is awesome. Thanks so much for what was clearly a ton of work. I have added in some minor points about accrued interest. Whether or not accrued interest is really part of price seems to depend on the source...it's all semantics anyway. Conceptually I tend to think of it as price though. --Linuxizer 12:18, 6 April 2010 (UTC)

Thanks. I just finished the page and let it loose in the forum for review. New in wiki - Bond Pricing Could you (or any other editor) double-check Price Between Coupon Periods? I listed Fabozzi's 3 steps to follow, but then proceeded to do everything in one example. The wording doesn't quite match.

I'll insert the bond sidebar and add a section on Pricing in Bonds: Advanced Topics (will link to this page) if it's OK to go. --LadyGeek 02:24, 7 April 2010 (UTC)