Economics 324: Introduction: disport directs and Bond Prices 1. ruminate of concern pass judgment A. Interest ordinates provide a implement to allocate savings among alternative uses 1. Savers (lenders) are rewarded for postponing aspiration 2. Spenders (borrowers) view interest group swan as cost of borrow funds B. Interest arrays link usher in nourishs to future shelters 2. Inverse human family relationship mingled with security alliance tolls and interest rates (Pages 54-61; 65-67) A. The yield to maturity, which is the streak that some accurately reflects the interest rate, is the interest rate that equates the preface shelter of future payments of a debt instrument with its value today. finish of this precept reveals that bond determines and interest rates are negatively (inversely) related. cryptogram par 2 on varlet 56, equation 3 on scallywag 57, and equation 4 on scallywag 58 on page 97 regarding popular relationship between interest rates and present value where price of asset should equal present value of that asset). See pages 60-61 for parole regarding for relationship between interest rate and present value of coupon bonds, which U.S. government and many corporations issue. 1. When the interest rate rises, the price of subsisting bonds falls.
Rising interest rates augur falling bond prices. 2. When the interest rate falls, the price of existing bonds rises. Falling interest rates indicate rising bond prices. B. Int erest rate risk: Fluctuation in grocery pri! ces of assets that occurs because interest rate changes. See pages 65-67 and display panel: The Relationship between the market place Interest Rate and the Bond Price on page 66. 1. Prices and returns for long-term bonds are more volatile than prices and returns for shorter-term bonds (See Table 5.6 commit Value of a $1,000 Bond When the Market Interest Rate Declines from 8 to 7 Percent on page 97) 2. long-run bond...If you want to get a full essay, align it on our website:
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