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Having determined how to calculate the value of a bond (Bond Price) and the effective rate of return of bond (i) you should now be able to derive or...
Having determined how to calculate the value of a bond (Bond Price) and the effective rate of return of bond (i) you should now be able to derive or explain some key bond relationships.
P = C [1 - 1/(1+i)n]/i + M/(1+i)n
Using the above bond formula, your reading assignments and basic logic, answer each of the following three bond relationship questions in a brief one paragraph posting.
1. Logically explain the following bond relationship and why it works: "The value of a bond is inversely related to changes in the investor's present required rate of return (the current interest rate)."
2. Explain what bond market condition would result the market price of a bond being less than par and what bond market condition would result in the market price of a bond being greater than par.
3. Explain what happens to the market price of a bond as the bond approaches its maturity date and why this happens.
