Bond Price Lab
The coupon never changes.Watch the price move anyway.
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Sign inThis Lab shows why a bond's price moves when its coupon never does. A bond's coupon is fixed the day it is issued. Its price changes constantly, because a fixed payout is worth only as much as it compares with what else is available right now. You set the face value, the coupon rate and the prevailing interest rate, and the Lab shows the price and how it compares with the face value.
How to use this Lab
- Set the face value, from ₹1,000 to ₹1,00,000.
- Set the coupon rate, from 2 to 12 percent. It is fixed forever, so it stays put when the market moves.
- Set the prevailing interest rate, from 2 to 14 percent. This is what the market offers elsewhere now.
- Read the price, whether the bond trades at par, at a premium or at a discount, the annual coupon, and the percentage against face value.
What to notice
- Only the price moves
- Move the prevailing-rate slider and nothing about the bond changes: the same issuer, the same fixed coupon. Only the price moves, to keep that coupon competitive with whatever else the market offers.
- Rates up, price down
- When the prevailing rate rises above the coupon, the price falls below the face value, a discount. When it falls below the coupon, the price rises above the face value, a premium.
- At par, the two rates match
- When the coupon and the prevailing rate are equal, the bond trades at its face value, called par.
Three runs of the Lab (hypothetical)
A bond with a face value of ₹1,000 and a 6 percent coupon pays ₹60 a year. With the prevailing rate also at 6 percent, the Lab shows a price of ₹1,000, at par.
Raise the prevailing rate to 8 percent without touching the coupon: the price falls to ₹750, 25 percent below the face value.
Lower the prevailing rate to 5 percent: the price rises to ₹1,200, 20 percent above the face value. The ₹60 a year did not change in any of the three.
What this Lab does not show
- The Lab uses a teaching estimate: the annual coupon divided by the prevailing rate. It is close enough to show direction and rough scale, but it is not real-world pricing, which also depends on the time left to maturity.
- It does not include accrued interest, taxes, or the risk that an issuer fails to pay, which is credit risk.
- It does not recommend any bond or amount. Maetis does not give investment advice.
Common questions
- Why do bond prices fall when interest rates rise?
- Because a fixed coupon becomes less attractive next to newer bonds paying more, so buyers pay less for it.
- What does it mean to trade at par, a premium or a discount?
- At par means at the face value, at a premium means above it, and at a discount means below it.
- Does the coupon change when the price changes?
- No. The coupon is fixed when the bond is issued. Only the price moves.
- Is this the exact price of a real bond?
- No. It is a simplified estimate that ignores time to maturity. It shows the direction and rough size of the effect.