Price of a bond: The market price of the bond based on its particular characteristics is called a bond price. It is computed by discounting the value of future cash flows. To get the price of the bond investor’s coupon payments and face value at the time of maturity are discounted at current yields. Interest rate The interest rate is simply the rate at which annual coupon payment is made by the issuer of a bond. The rate is set at the time of issue of the bond and the same rate is mentioned in the bond certificate. To determine: The relationship between interest rates and bond prices.

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Chapter 6, Problem 6CT

Summary Introduction

Price of a bond:

The market price of the bond based on its particular characteristics is called a bond price. It is computed by discounting the value of future cash flows. To get the price of the bond investor’s coupon payments and face value at the time of maturity are discounted at current yields.

Interest rate

The interest rate is simply the rate at which annual coupon payment is made by the issuer of a bond. The rate is set at the time of issue of the bond and the same rate is mentioned in the bond certificate.

To determine:

The relationship between interest rates and bond prices.

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