Present Value
Present value is the current worth of a future stream of cash flows, discounted back to today using an appropriate rate. In fixed income, it is used to price bonds by discounting each expected coupon payment and the principal at the yield or discount rate.
Example: Example: A bond with $50 annual coupons for five years and $1,000 principal at maturity discounted at 4% per year has a present value equal to the sum of the five discounted coupons and the discounted principal.
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