[jcw1503]

The ninja notes show this formula for effective interest rate-PV of principle + Interrest = Bond price…..My other study material does not have this formula. Other than it equalling bond price, what does this formula have to do with effective rate? Thanks.

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[surfer4life949]

The PV of the principle and the PV of the interest cash flows are discounted using the effective rate. When you discount these cash flows, you get the bond's price or fair value.

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