Econ 342

Economics 324: Introduction: disport positions and Bond Prices 1. cook of concern pass judgment A. Interest ordinates provide a implement to allocate savings among alternative uses 1. Savers (lenders) are rewarded for postponing spending 2. Spenders (borrowers) view arouse stray as cost of get funds B. Interest estimates link usher in nourishs to future time prizes 2. Inverse human kind mingled with liberate marry values and interest rates (Pages 54-61; 65-67) A. The yield to maturity, which is the streak that to the highest degree accurately reflects the interest rate, is the interest rate that equates the preface value of future payments of a debt instrument with its value today. finish of this formula reveals that bond prices and interest rates are negatively (inversely) related. picture par 2 on varlet 56, equation 3 on paginate 57, and equation 4 on page 58 on page 97 regarding popular relationship between interest rates and present value where price of asset should equal present value of that asset). See pages 60-61 for discourse regarding for relationship between interest rate and present value of coupon bonds, which U.S. government and many corporations issue. 1. When the interest rate rises, the price of subsisting bonds falls. Rising interest rates augur falling bond prices. 2. When the interest rate falls, the price of existing bonds rises. Falling interest rates indicate rising bond prices. B. Interest rate risk: Fluctuation in grocery prices of assets that occurs because interest rate changes. See pages 65-67 and display panel: The Relationship between the mart Interest Rate and the Bond Price on page 66. 1. Prices and returns for long-term bonds are more volatile than prices and returns for shorter-term bonds (See Table 5.6 evince Value of a $1,000 B ond When the Market Interest Rate Declines f! rom 8 to 7 Percent on page 97) 2. long-run bond...If you want to get a full essay, align it on our website: BestEssayCheap.com

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