Bondpricesmoveintheoppositedirectiontointerest rates

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Unformatted text preview: d P Echevarria 3 BOND VALUATION C. Impact of Interest Rate Movements on Bond Prices 1. Bond Prices move in the Opposite Direction to Interest Rates. 2. Bonds will sell at discounts or premiums or equal to Face values 3. Interest Rates move in the Same Direction as Inflationary Expectations 4. Interest Rates move in the Same Direction as Perceived Riskiness All Rights Reserved Dr David P Echevarria 4 BOND VALUATION D. Factors Affecting Bond Price Interest Rate Sensitivity 1. The time remaining to maturity; direct relationship 2. The size of the coupon payments 3. The frequency of coupon payments; i.e., annual, Semi­, quarterly, monthly D. Measuring Sensitivity to Interest Rate Movements: Duration 1. As duration increases, the greater the sensitivity to interest rate fluctuations 2. Import...
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