Bond valuation is the process of determining the fair value of a bond based on its expected future cash flows. These cash flows typically include periodic interest payments, known as coupon payments, and the principal amount, or face value, that is returned to the bondholder at maturity. The present value of these cash flows is calculated using a discount rate, which reflects the bond's risk and the prevailing interest rates in the market. Investors use bond valuation to assess whether a bond is priced fairly compared to its intrinsic value. If the calculated value is higher than the market price, the bond may be considered undervalued, presenting a potential investment opportunity. Conversely, if the market price exceeds the calculated value, the bond may be overvalued.