STOCK AND BOND PRICE ANALYSIS

Jun 17th, 2015
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When rating of the bond decreases yield of the bond increases. In this case, C rated bond falls under the junk bond category, and the maturity year is less than 10 years.

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Assignment TitleStudent NameCourse NameInstructor NameDateWhen rating of the bond decreases yield of the bond increases. In this case, C rated bond falls under the junk bond category, and the maturity year is less than 10 years. When time to maturity differs, the yield to maturity will have a significant difference. Whenever the year to maturity is higher yield to maturity will be high (Money-Zine.com, n.d.). Similarly, yield maturity will be high for poorly rated bonds. In this case, C rated bond has very fewer years to maturity when compared to A and B rated bonds, but the yield to maturity is higher than A rated but slightly lesser than B rated. If the time to maturity is lesser for B rated bond, then its yield to maturity will be lesser than C rated bond that can be noticed with decrease in time to maturity calculation. Thus, yield increases with decrease in rating because of an increase in risk (Investorguide.com, 2013). There is an inverse relationship between interest rate and prices (Patton, 2013). In other words, when the interest rate increases prices of the bond decreases and vice versa. When the yield increases, the price of the bond decreases. If incase, the coupon rate of the bond is higher than the yield then the bond will be selling at premium (Investopedia.com, n.d.). The main reason for such premium price is that company is providing higher interest when compared to the market interest rate. In this case, investors will earn

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