Bond Prices and Interest Rates Essay Example | Topics and Well Written Essays - 500 words

Bond Prices and invade Rates - Essay ExampleSimilarly, a bond is said to be offered at a neglect on its par foster, if the bond price is less than the par value which occurs in the instance when the reckon of come down that is offered by the bond is less than the grocery store rate of return that is offered on other exchangeable risk assets in the market. A bond is said to be priced at par value if the market price of the bond is equal to the par value of the value which occurs in the instance when the rate of return offered by this bond and the required rate of return for this type of asset are equal. 1 2Moving on, we result now look at the basic determine mechanism for bonds. This mechanism is the standard procedure that is employ for bond pricing and states that the value of a bond must be equal to the present value of all the future payments that the bond will make over the course of its maturity. This is directly in attract with the no arbitrage rule as the cost of th is asset and the generated revenues are being equalized in the pricing technique. 1 2 A basic formula for calculating bond price is given belowComing to our circumstantial question, as we can see from the mathematical equation for the derivation of bond prices, an increase in please rates will lead to a decrease in bond prices.