Attached. Please let me know if you have any questions or need revisions.Discussion WorkQUESTION 1: Bond ValuationThe first key relationship of bond valuation is that the bond’s value is inversely related tothe variations in the yield to maturity. This implies that an increase in market interest rate leadsto a decrease in bond’s price (Khan Academy, 2013). The second relationship is that when themarket’s needed yield to maturity is more than par value or the premium bond, the bond’smarket value will be lower than the par value or discount bond. However, the relationship holdsif the required market yield to maturity is less that the coupon interest rate. The third relationshipis that the bond’s market value approaches its par as the date of its maturity approaches. This isbecause, the bond will be withdrawn at maturity and the investor will get the bond’s par value(Paul Thistle University, 2017). The fourth relationship is that the interest rate risk of long termbonds is greater than that of short-term bonds. This is due to the high fluctuation of long-termbond prices resulting from a change in interest rates as compared to low fluctuation of prices ofshorter-term bonds.Bond prices move inversely to changes in interest rates due to a number of reasons. Tobegin with, the bond will be trading at a discount at par when the interest rate goes up, as buyerswill be reluctant to pay the bond’s face value (Khan Academy, 2013). Thus, the investor wouldhave to sell the bond at a lower price, or discount at par, to allow the bond generate the newinterest to the new owner. On the other hand, as pointed out by Mega & Widayat (2019), onewould pay more premiums to par, when interest rate reduces, as the bond would be carryinggreater interest rate as compared to what was currently offered in the market.ReferencesKhan Academy. (2013). Relationship between bond prices and interest rates/ Finance & CapitalMarkets/KhanAcademy.Retrievedfromhttps://www.youtube.com/watch?v=I7FDx4DPapw&feature=emb_titleMega, A., & Widayat…
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