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Bonds:Prices and Yields



  Jun 12, 2024

Bonds:Prices and Yields



Aspect Description
Price The current market value of the bond.
Interest Rate The fixed annual rate promised by the issuer.
Yield The annual interest rate, fluctuates based on price, interest rates, and issuer creditworthiness.
Secondary Market Platform where bonds are traded after initial issuance.
Maturity Duration until the bond reaches its full value and is repaid.
Interest Rates Rise Bond prices decrease, yields increase. Existing bonds must compete with new bonds offering higher interest rates.
Interest Rates Drop Bond prices increase, yields decrease. Existing bonds become more attractive as they offer higher rates compared to newly issued bonds with lower interest rates.

In summary, the price and yield of a bond have an inverse relationship. When interest rates rise, new bonds with higher rates make existing bonds less attractive, lowering their prices and raising yields. Conversely, when rates drop, existing bonds become more appealing, raising their prices and lowering yields


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