Bonds: why do you buy high and sell at a low interest rate? - low interest rate home loan
Why do people buy bonds at an interest rate and sell low interest rates to maximize profits. How does it work? Please explain.
Tuesday, January 12, 2010
Low Interest Rate Home Loan Bonds: Why Do You Buy High And Sell At A Low Interest Rate?
5 comments:
Since the interest on bonds and the nominal value are inversely proportional. The interest rate if I buy a 10-year bond with a face value of $ 100 and a coupon of 5%, which remains stable and is valid for 3% decline after a year and demand for my bonus, because it discount rate is higher than supplying the market, the result is that the value of my $ 115.57 bonus. So if I sell on the open market at a rate that I have 20.57 in earnings, gains from rising bond prices and a pair of $ 5 coupon for the year that I held.
Now consider the reverse situation, the link itself, but a year later, at a rate of 8%, now difficult to sell my bonds at par to take place, where investors can get a discount of 8% on the market well if the price for my ticket is $ 81.26 to make it attractive for investors in the market, if I will sell in this environment, I realized a loss of $ 13.74, a loss of 18.74 at the nominal value of obligation if the payment of $ 5 coupon I received in one year.
There is an online calculator, to a large common assumption that show test allowson ed.
http://www.smartmoney.com/Investing/Bond ...
When interest rates are higher is required to ensure "that" the high rate. This requires an investment of fixed income. As an added bonus. The interest rate on a loan always reflect, among other factors, such as risk, interest rate rates.As current low interest rate 1st You keep your income high and 2 Increase the price of your bond is.
With low interest rates is exactly the opposite.
Capital gains. The market price, the price people are willing to increase a special bonus, if the interest rates charged and fall off if interest rates rise. The reason is, if the person buying the bond is actually a current interest rate, the out of this, in which the bond was issued always different.
nominal interest rate bonds alias is not really important, is the price of the bond that matters. For example, you would not be willing to pay more for something that gave 40% of pay in comparison to something that has given the 3%? Here you have the price difference.
) For most bonds, fixed interest rate (coupon. It is the market value of bonds fluctuates.
Post a Comment