Understanding Bond Valuation, Yields, Duration & Price Dynamics

1. Coupon Rate, Current Yield, Capital Gains & YTM

• Coupon Rate: Fixed annual interest based on face value.
• Current Yield: Current Yield = (Coupon / Market Price) × 100
• Capital Gains: Earned when bond is bought at discount and redeemed at par.
• YTM (Yield to Maturity): Total expected return including coupons and gain/loss.

2. Inflation vs Interest Rates

As inflation rises, interest rates often rise to control it. This inversely impacts bond prices.

3. Bond Price vs Yield

Interest Rates (Yields)	Bond Prices
Increase	Fall
Decrease	Rise

4. Bond Price vs Coupon

Higher coupon = higher income = higher bond price in secondary markets. Zero-coupon bonds trade at discount.

5. Bond Price vs Duration

Duration measures sensitivity of bond price to interest rate changes. Longer duration = more sensitivity.

6. Price vs Coupon vs Yield vs Duration

Factor	Impact on Price
High Coupon	Increases Price
High Yield	Decreases Price
High Duration	More Price Volatility

7. Yield Curve Types

Type	Shape	Economic Indication
Normal	Upward	Growth expected
Flat	Horizontal	Uncertainty
Inverted	Downward	Recession risk

8. Bond Duration

• Macaulay Duration: Weighted average time to receive cash flows
• Modified Duration: Price sensitivity = Macaulay Duration / (1 + Yield)

9. Bond Valuation

Price = Present value of all future cash flows.

Price = ∑ (Coupon / (1+r)^t) + (Face Value / (1+r)^n)

Conclusion

Understanding how bond price, coupon, yield, and duration interact helps you navigate interest rate movements and market conditions smartly. Always match your investment goals and risk appetite with the right bond strategy.