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    msid's Avatar
    msid Posts: 1, Reputation: 1
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    #1

    Apr 25, 2007, 01:30 PM
    Bond Prices
    If the interest rate in market declines from 11% to 8%, What is the bond price at 11% and at 8%? What would be the percentage of return if you sell it at 8%, but you had bough tit at 11%?
    Dr D's Avatar
    Dr D Posts: 698, Reputation: 127
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    #2

    Apr 25, 2007, 03:59 PM
    Your question is a bit confusing, so I will do the best that I can, without doing your homework. Let's soppose that you buy a $1000 bond with a simple yield of 11% per year. How much $ would this bond earn inthat year? Hint: take 11% of $1000. Now let'say that market rates drop to 8% and you have a bond paying 11%. Will the value of the bond go up or down? To determine the present value of this bond you take the yearly cash earned and divide it by the current market rate, and that will give you the present market value of your $1000 bond. Let me know what answer you came up with.
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