Description
There is an inverse relationship between bond prices and yields. This inverse relationship will be demonstrated by calculating bond prices to show that interest rates move inversely: if yields rise, then bond prices fall. Bonds will be sold either at a premium or a discount. With this in mind respond to the following question.
You currently own a 30 year Treasury Bond paying a 4% annual coupon rate. The market interest rates for like securities rose to 5%. Would your bond sell for a premium or a discount? Why?
What would the market value of your bond be? Prove your answer by showing your work, the appropriate factors, or the factors that would be used for the fx calculator.
Explanation & Answer
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Finance
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When the coupon Rate is pegged at 4%, Market Interest rates rose to 5%, so the bond will
be sold for a discount. The reason is if the market interest rate rises then the value of the bond
will decline. Assume you invested $1000 in the Treasury bond when you create the cash flow
stream of 59 periods of $20...
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