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Steve
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DevinBecause price and interest rate are inversely related.
If a bond will pay $1000 in one year, and the price is 950, the interest rate would be about 5.3%
If another bond pays the same 1K, but price is 900, the interest rate is 11.1%
This is the way the bond market works, the reason a bond price goes up is because demand rises, as the demand rises, the interest rate will diminish, because people are fleeing to quality.
Conversely, if a bond price is low, interest rates go up and offer an incentive for a low-demand bond.
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Will a bond's yield to maturity increase or decrease if a bond 's price increases?
as yield to maturity increases the bonds price decreases, because a higher yield to maturity means its riskier to investors
If the bond's price increases will it increase or decrease bond's yield?
neither once the bond is created the yield is set. the bond price is simply a reflection of the current rate and the rate, 'yield' of the bond.
Will a bonds yield to maturity increase or decrease if the bond is downgraded by the rating agencies?
Changing of rating, in and of itself, will not affect the yield, but more generally, a more negative market view will see the yield rise and the price fall.
What are the factors that influence the bond interest rates or prices?
1, bond price move inversely to interest rate 2. a decrease in yield results in a larger change in price than increase in yield 3. change in yield, long term bond price changed more than the short term bond 4. bond price increases with maturity at a diminishing rate 5. for a given change in yield, bond price with low coupon rate will change more than the bond price with high coupon rate.
Why do bond prices and yields vary inversely?
Bonds are valued by discounting the coupon payments and the final repayment by the yield to maturity on comparable bonds. The bond payments discounted at the bond’s yield to maturity equal the bond price. You may also start with the bond price and ask what interest rate the bond offers. This interest rate that equates the present value of bond payments to the bond price is the yield to maturity. Because present values are lower when discount rates are higher, price and yield to maturity vary inversely.
