2007-12-16 22:58:11 · 2 answers · asked by Birley C 1 in Business & Finance ➔ Personal Finance
huh?
If you mean buying gifts using a credit card, then I guess the higher debt load reduces your FICO score and can lead to higher interest rates when you apply for a loan. That is the best answer that I can give with limited information.
2007-12-17 02:49:14 · answer #1 · answered by Steve 6 · 0⤊ 1⤋
Gilts are Government Bonds ... a Bond is a tradable interest bearing certificate of deposit.
When the Government wants some money, it sells Bonds that pay a fixed amount of interest (known as the coupon).
The face value is usually £100 (not always) and they usually have a redemption date (again, not always) at which point you get your £100 back ..
OK .. now because the Bonds coupon is fixed, the value of the Bond itself changes with the market interest rates ...
Lets take an example. Say the coupon rate is 5% = then on a £100 Bond that means a (fixed) £5 coupon per year ....
... now if market interest rates rise to (say) 10%, then plainly no-one is going to want to pay £100 for the Bond (remember you only get £5 = so if you paid £100 for the Bond you would only be getting 5%). ...
Plainly the value of the Bond has to FALL until the £5 coupon makes it attractive to own the bond .. and this happens (in this example) at £50 .. when you pay £50 to buy the Bond the £5 coupon means you are getting 10% interest...
Ah ha you say, but what happens when the bond expires ???
Well you get back the original face value (£100) for it .. so if you 'only' paid £50 you have got yourself a bargain ! ...
... yes, well the sellers know that .. SO, if the Bond has (say) 1 year left to run, they are NOT going to sell it to you at £50 !
.. if they did, you would get not only the £5 coupon but the £100 repayment = a redemption yield of 210% !
... so in this example, for a 1 year Bond the price corresponding to a 10% return would be £95.45....
SO .. in summary .. when Interest rates go UP, Bond value goes DOWN, when rates fall, Bond value goes UP (but not always :-) remember its the buyers expectation of FUTURE interest rates that count .. )
2007-12-17 07:24:28 · answer #2 · answered by Steve B 7 · 1⤊ 0⤋