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What is the link between the level of interest rates and the price of bonds? Why does this connection have to be true? How has the present interest rate environment affected bond prices?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 12MC

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Question

What is the link between the level of interest rates and the price of bonds? Why does this connection have to be true? How has the present interest rate environment affected bond prices?

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.

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