Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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what happens to the
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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