out as follows. It is also assumed that all coupons are reinvested at the same rate. The coupon payment on each of these bonds.5 1,000.5. These factors work for and against each other, and affect the degree to which bond prices change in response to prevailing interest rate changes, as demonstrated in the following chart: Duration principles to remember: Changes in the value of a bond are inversely related. Investopedias Macaulay Duration Calculator determines the bond in our example has a duration.55 years. If you buy the 10-year bond, you would only lose 7 (-10 3) if interest rates rise.
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Discrete and continuous spot rates are mathematically related in the same way as an interest rate and its corresponding force of interest are related. Sometimes this is simply referred to as 'yield' for short. The Function of Price Fluctuations The underlying reason bond prices rise and fall is to bring the rates of older bonds into line with prevailing rates. Market price : the price of a bond, including the interest accrued on the next coupon payment. Have a question about the calculator?
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