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Bond Pricing Factors and Direction of Response.

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What are 3 factors that cause a bond's price to change and what is the predicted direction of change for the bond's price from changes in these factors?
How do risks associated with non-dollar denominated bonds impact the price of the bond and the dollar denominated return?

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Solution Summary

This tutorial is 250 words plus four references and explains how three factors and currency impact bond prices.

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1. Interest rates in the market.

If rates rise, the price of the bond decreases because the payment stream doesn't change with market rates but the market discounts that payment annuity at the higher market rate to get price.

If rates fall, the price increases because the payment stream doesn't change with market rates but the market discounts that payment annuity at the lower market rate to get price.

2. Credit quality.

If the bond rating is higher, ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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