Present Value of Bonds
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What are the cash flows associated with calculating the present value of bonds? What happens to the value of bonds when interest rates increase? Explain why this happens? What happens to the value of bonds when interest rates decrease? Explain why this happens? What impact does the number of years until maturity have on the value of a bond?
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This solution is comprised of a detailed explanation to answer what are the cash flows associated with calculating the present value of bonds, what happens to the value of bonds when interest rates increase? Explain why this happens, what happens to the value of bonds when interest rates decrease, explain why this happens, and answer what impact does the number of years until maturity have on the value of a bond.
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What are the cash flows associated with calculating the present value of bonds? What happens to the value of bonds when interest rates increase? Explain why this happens? What happens to the value of bonds when interest rates decrease? Explain why this happens? What impact does the number of years until maturity have on the value of a bond? (include references)
Example: a 5 year to maturity bond has a coupon of 7% and is trading at par. What will happen to the bond if the rates on similar bonds increase by 100 basis points?
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