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Bonds cannot be worth less than their book value. As long as a bond sells for an amount above its par value, the coupon interest yield and rate to maturity remain equivalent. As market interest rates increase, bond prices decrease. Bonds that sell at a discount to be acquired with a discount rate less than the market interest rate.
Bonds with a longer period to maturity of less interest rate risk. As investors’ required rate of return on a connection increases, the value of the relationship increases also. As the maturity time of the bond approaches, the bond’s market value approaches its par value. Shorter-term bonds have better interest risk than do longer-term bonds.
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Answer: Longer-term bonds are more price-sensitive to changes in interest rates because there are more money flows remaining whose values are affected by the change. Since shorter-term bonds have fewer cash flows remaining, price sensitivity to change in rates of interest shall be lower. Furthermore, as the bond gets closer to maturity, today’s value of the maturity payment gets less and less volatile.
Duration is a way of measuring how responsive a bond’s price is to changing interest rates. Duration is higher for long-term bonds than for short-term bonds. European equivalent of a junk relationship. When the bonds mature, the issuing firm is faced with a small cash outflow in accordance with the money inflow the firm receives when the bonds are at first issued.
Zero discount bonds have lower interest risk than bonds with high coupons. Zero discount bonds are an extremely popular way for companies to borrow funds. Most zero-coupon bonds in the U.S. U. S. Treasury Department. Debentures are unsecured long-term debt. Zero promotion bonds are disadvantageous to the issuing firm if rates of interest fall.
