The major principle of bond valuation is the bond’s value is equal to the value of their expected (future) cash flows. The valuation process involves these three steps: Estimation the expected funds flows. Determine the appropriate interest rate or interest rates to be used to discount the cash flows. And calculate present value of your expected cash flows within step one by using the interest rate or interest levels determined in next step. Overall bond valuation is the determination of the right price of a bond.