2007-03-18 17:02:06 · 4 answers · asked by Anonymous in Business & Finance ➔ Investing
Bonds are bought and sold in a financial market for 2 reasons
1. for long term investment
2. shot term gains
The interst rates and bond prices are inversely related.
Retrun on a bond, if fixed, will have a guaranteed return.
The YTM of bond is arrived at by taking into account the current price and the discounted retrun over the residual maturity.
If the interest rates fall, then any investment as on date will get lesser return than a bond and vice versa.
Thats why, the bond prices rise, when ther is fall in the int. rates.
But the extetn up to which the price will rise, will depend upon to the extent the ytm remains more than the yield based on the current interest rate.
However, in the case of floating rate bonds, the situation will be totlaly different.
.
2007-03-19 00:07:39 · answer #1 · answered by surez 3 · 1⤊ 0⤋
As interest rates rise bond prices fall and as rates fall the prices of bonds increase. Inverse relationship
2007-03-19 20:07:04 · answer #2 · answered by Santosh 3 · 0⤊ 0⤋
Inverse, if interest rates go up then bond prices will go down. If interest rates go down then bond prices will go up.
2007-03-18 18:04:51 · answer #3 · answered by Contrarian 3 · 1⤊ 0⤋
i agree -inverse
2007-03-18 20:20:19 · answer #4 · answered by ruchikabhattad 1 · 1⤊ 0⤋