Theorems for Bond Value

There are a few theorems that are important for understanding the valuation of bonds. These theorems include:

• Theorem 1: The present value of a bond is equal to the sum of the present values of the future cash flows.
• Theorem 2: The yield to maturity of a bond is the discount rate that equates the present value of the future cash flows to the current market price of the bond.
• Theorem 3: The price of a bond will decrease if the interest rates increase, and will increase if the interest rates decrease.

These theorems can be used to understand how the value of a bond is affected by different factors, such as the interest rates, the coupon, and the maturity.

Here are some additional things to keep in mind about theorems for bond value:

• The theorems for bond value are based on the assumption that the bond will be held to maturity. If the bond is sold before maturity, the actual return may be different from the yield to maturity.
• The theorems for bond value are based on the assumption that the interest rates are constant. If the interest rates change, the value of the bond will also change.
• The theorems for bond value are a useful tool for understanding the valuation of bonds. They can be used to determine the fair market value of a bond, and to compare different bonds.