Bond Pricing Pedagogy and One-Step Bond Pricing

10 Pages Posted: 6 Jul 2012

See all articles by Tom Arnold

Tom Arnold

University of Richmond - E. Claiborne Robins School of Business

Date Written: July 4, 2012

Abstract

Pricing bonds is generally one of the earliest applications of time value of money in a finance curriculum. A bond price incorporates the use of an annuity and an individual discounted cash flow while also being a “fundamental” financial security. This paper works through the pedagogy of bond pricing and extends the traditional bond pricing formula in a manner that can be used to more clearly demonstrate the relationship between the coupon rate and the yield to maturity. Further, when implemented as a test question or within an assignment, this method can challenge students to think more critically about bond pricing and the time value of money.

Keywords: bond pricing, pedagogy, annuity

JEL Classification: G00, G12, G30

Suggested Citation

Arnold, Thomas M., Bond Pricing Pedagogy and One-Step Bond Pricing (July 4, 2012). Available at SSRN: https://ssrn.com/abstract=2101316 or http://dx.doi.org/10.2139/ssrn.2101316

Thomas M. Arnold (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

1 Gateway Drive
Richmond, VA 23173
United States
804-287-6399 (Phone)
804-289-8878 (Fax)

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