Equation 3.4 is the standard relationship between the price of a fixed-income bond, *PV*, and its yield to maturity, *y*. The evenly spaced coupon payments of *PMT* each period and principal redemption of *FV* are discounted over the *N* periods to maturity. That equation is rewritten here.

The present value of the stream of coupon payments, in brackets, is the sum of a finite geometric series. Define that to be *SUM*.

Divide both sides of this equation by (1 + *y*).

Start Free Trial

No credit card required