Answered step by step
Verified Expert Solution
Question
1 Approved Answer
If the interest rates have increased, then the current bond with low yield becomes unattractive, so their price decreases. This falls in line with the
If the interest rates have increased, then the current bond with low yield becomes unattractive, so their price decreases. This falls in line with the logic- that yield increases and price falls. But what about the new bonds at higher interest rates, their price should increase right because they have high demand at the moment. This goes against the logic of high yield-low price. can any of you explain? Thanks
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started