Answered: When the bond prices rise, interest…

Business

Finance

When the bond prices rise, interest rates fall. True FalsE

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.6: Perpetuities

Problem 2ST

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Question

When the bond prices rise, interest rates fall.

True

FalsE

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

Expert Solution

Step 1

Bonds:

Bond is a kind of debt instrument typically issued by corporations, government organizations and universities is usually utilized for the purpose of raising fund for companies or governmental agencies. The price of the bond is calculated by adding the present value of the principal amount of bond and present value of the interest payment of the bond. Both the principal amount and interest payments amount are discounted at the present value of the effective interest rate for the bonds.

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