Let's take a look at some of the US government bond products. Those would include things like treasury bills, treasury notes, treasury bonds, treasury, inflation, protected securities, TIPS and STRIPS. So what are these things? Well, treasury bills are short term securities that mature in less than 52 weeks. They're not paying a fixed interest rate, but they're sold at a discount. The face value is higher than the original purchase price.

Treasury notes are medium term securities that mature in two to 10 years. They pay a fixed interest rate or a coupon once every six months, and at the end, the notional amount of the bond is returned to the investor. And finally, treasury bonds. Treasury bonds are long-term securities that mature in up to 30 years. T bonds pay a fixed interest rate or a coupon once every six months, and the notion amount of the bond is returned at maturity. How do we price these things? Well, it goes back to the fundamental formula for a pretty much all financial maths, and that is to say that the present value is equal to the future value, the FV divided by 1 plus the discount rate or the rate of return, or the interest rate to the power of the number of periods to maturity.

Of course, if the bond has a coupon, we have to take the present value of the coupon amount into consideration as well.

How do we do this in Excel if we have a coupon paying bond? Well, I propose to use the PV function in Excel in using the PV function we need to know what the rate of the bond is, that is the interest rate or the decide rate of return per period. We need to know nper the number of periods to maturity. We need to know the PMT, the payment or the coupon amount. And finally, we need to know what the future value is or the face value of the bond.