The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future.

there is a consistent and predictable relationship between a bond’s coupon rate, its par value, a bondholder’s required return, and the bond’s resulting intrinsic value. trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond’s intrinsic value and its par value. these result from the relationship between a bond’s coupon rate and a bondholder’s required rate of return.

remember, a bond’s coupon rate partially determines the interest-based return that a bond (might/, and a bondholder’s required return reflects the return that a bondholder(would like/is receive from a given investment.

the mathematics of bond valuation imply a predictable relationship between the bond’s coupon rate, the bondholder’s required return, the bond’s par value, and its intrinsic value. these relationships can be summarized as follows:

• when the bond’s coupon rate is equal to the bondholder’s required return, the bond’s intrinsic value will equal its par value, and the bond will trade at par.