Answered: what happens to the bond prices when…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 9MC

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what happens to the bond prices when interest rate falls?

Expert Solution

Step 1

At the point when interest rates increase, the bond price downfall, and bond costs ascend as loan costs or interest rates go down. From the start this inverse relationship can appear to be a bit of befuddling, however, a genuine model may give a superior comprehension.

Step 2

Bonds, at last, contend with one another on the interest income they offer investors. As loan costs go up, new gave bonds accompany a higher interest cost and give speculators or investors more income. As rates decay, new gave bonds have a lower interest rate and fresh bonds issued have a cheaper interest rate and aren’t as attractive as earlier bonds.

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