Explain the relationship between bond price and market interest rates using bond pricing formula

Finance Jan 14, 2021

Explain the relationship between bond price and market interest rates using bond pricing formula.

Expert Solution

The bond price will always have an inverse relationship with the market interest rate and when the bond prices will be going up, the market rates will be going down and when the market rates are going up the bond price will go down because the market rates are directly influencing the bond yield and it will be readjusting with the bond price.

The bond price will reflect thatit is the reflection of the price of the bond, when the yield to maturity of the bond will be adjusting and it will also changing the bond price yield to maturity will be directly getting influenced by the market interest rate and it will be reflecting the change in the prices of the bond as it is inversely related.

Bond pricing formula - sum of Cn/(1+YTM)^n + P/(1+i)^n

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