How Market Interest Rates affect Bond Prices and Yield?

  • If a bond offers a 5% coupon rate (interest rate). Market interest rates decrease to 4%. You will still receive a 5% coupon rate, provided you hold the bond until maturity:
  • If you sell the bond before its maturity, its price will be higher than it was in the previous year. With the increased bond price, the yield will be decreased for the bond buyer at the new, i.e., higher price.
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