SOLUTION: Bond Prices and Valuation Discussion

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 This isbecause, the bond will be withdrawn at maturity and the investor will get the bond’s par value(Paul Thistle University, 2017).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.Retrievedfrom, A., & Widayat…

15 Million Students Helped!

Sign up to view the full answer

Order a unique copy of this paper
(550 words)

Approximate price: $22

Our Basic features
  • Free title page and bibliography
  • Plagiarism-free guarantee
  • Unlimited revisions
  • Money-back guarantee
  • 24/7 support
Our Options
  • Writer’s samples
  • Expert Proofreading
  • Overnight delivery
  • Part-by-part delivery
  • Copies of used sources
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

AcademicWritingCompany guarantees

Our customer is the center of what we do and thus we offer 100% original essays..
By ordering our essays, you are guaranteed the best quality through our qualified experts.All your information and everything that you do on our website is kept completely confidential.

Money-back guarantee always strives to give you the best of its services. As a custom essay writing service, we are 100% sure of our services. That is why we ensure that our guarantee of money-back stands, always

Read more

Zero-plagiarism tolerance guarantee

The paper that you order at is 100% original. We ensure that regardless of the position you are, be it with urgent deadlines or hard essays, we give you a paper that is free of plagiarism. We even check our orders with the most advanced anti-plagiarism software in the industry.

Read more

Free-revision guarantee

The thrives on excellence and thus we help ensure the Customer’s total satisfaction with the completed Order.To do so, we provide a Free Revision policy as a courtesy service. To receive free revision the Academic writing Company requires that the you provide the request within Fifteen (14) days since the completion date and within a period of thirty (30) days for dissertations and research papers.

Read more

Privacy and Security policy

With, your privacy is the most important aspect. First, the academic writing company will never resell your personal information, which include credit cards, to any third party. Not even your lecturer on institution will know that you bought an essay from our academic writing company.

Read more

Adherence to requirements guarantee

The academic writing company writers know that following essay instructions is the most important part of academic writing. The expert writers will, therefore, work extra hard to ensure that they cooperate with all the requirements without fail. We also count on you to help us provide a better academic paper.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2020 at 10:52 AM
Total price:
The price is based on these factors:
Customer Academic level
Number of pages required
Urgency of paper