Unformatted text preview: 10%. What does this do to the value of your bond? If you want to sell it, the purchaser will want to receive a 10% interest rate because that's what new bonds are paying. So, she will pay $800 for your bond because ($80/$800) = 10%. So, the value of your bond falls when interest rates rise. Bond Prices and Yield to Maturity • discounting future payments at a higher interest rate reduces the present value of the payments and bond prices • a lower yield to maturity raises the present value of the future payments and the price of the bond • the longer the maturity of a bond, the larger will be the price change in response to a change in the yield to maturity yield to maturity = f(current yield, F  P) 1. when F = P, yield to maturity (i) = current yield(C/P) 2. when P < F, i > C/P 3. when P > F, I < C/P...
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 Fall '09
 BradRifkin
 Interest, Interest Rate, Personal Finance, $100, $1000, $80, $800

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