[Verse 1] A bond is just a future stream of cash Present value brings it back to now Face value waits at maturity's dash Coupon payments flowing, let me show you how Discount rate becomes our faithful guide Market interest rates we can't hide [Chorus] PV equals payment over one plus rate to the power of time Duration measures sensitivity, price and yield move inverse in line YTM is the magic number, total return if held complete Bond math dancing to the market's beat [Verse 2] When market rates are climbing up high Bond prices fall, they're moving inverse Your fixed coupon can't compete and fly This relationship we must rehearse Premium bonds trade above their face Discount bonds below, know your place [Chorus] PV equals payment over one plus rate to the power of time Duration measures sensitivity, price and yield move inverse in line YTM is the magic number, total return if held complete Bond math dancing to the market's beat [Bridge] Modified duration tells the story Price elasticity's the game Longer maturity means more worry Interest rate risk is not the same Convexity adds the second layer Price curves bend, become a player [Verse 3] Yield to maturity assumes we hold Reinvest coupons at that same rate Current yield is simpler, truth be told Annual coupon divided by price straight Credit risk and liquidity too Affect the yields that markets pursue [Chorus] PV equals payment over one plus rate to the power of time Duration measures sensitivity, price and yield move inverse in line YTM is the magic number, total return if held complete Bond math dancing to the market's beat [Outro] Calculate with precision, validate each assumption Price discovery through present value function Master these concepts for your CPA dreams Bond valuation's easier than it seems
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