Relationship Between Bonds and Interest Rates.
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What is the relationship between bond price and interest rate changes? Under what interest rate conditions would the value of bonds increase? Why?
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Solution Summary
The solution examines the relationship between bonds and interest rates.
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First, the present value of the bond is generally equal to its current price. Second, the lower the current interest rate is the higher the present value of the bond. Thus, if interest rate changes, then the present value of the bond and its price also changes.
If the change causes ...
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