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Bond prices and interest rates are closely related and can both be used to forecast economic activity, so investors should at least be aware of the basics: how interest rates affect bond prices ...
When interest rates rise, bond prices tend to fall. This happens because new bonds are issued with higher interest payments, making them more attractive than existing bonds with lower payouts.
Bond interest rates and bond prices have an inverse relationship. If a newly issued bond’s interest rate exceeds the interest rate of an older bond of the same duration and type, then the market ...
The annual bond coupon should increase from $5 to $5.56 but the coupon can't change as only the bond price can change. So the bond is priced approximately at $100 - $0.56 or $99.44 . If the bond is held until maturity, the bond will pay $5 as interest and $100 par value for the matured bond.
For example, for small interest rate changes, the duration is the approximate percentage by which the value of the bond will fall for a 1% per annum increase in market interest rate. So the market price of a 17-year bond with a duration of 7 would fall about 7% if the market interest rate (or more precisely the corresponding force of interest ...
Continue reading → The post Bond Yield vs. Interest Rate: Investing Guide appeared first on SmartAsset Blog. Yield and interest are highly-related when it comes to bonds. Your yield is based on ...