The higher the coupon rate of bonds, the more expensive the selling price, because the interest income is high. This should be easy to understand. To sum up, under the same conditions, the higher the bond coupon rate, the higher the bond price, and the two change in the same direction. The higher the market yield, the lower the bond price. To sum up, under the same conditions, bond prices change inversely with market returns.
Extended data:
The relationship between interest rate and bond price;
1, the interest rate is inversely proportional to the bond price. The higher the interest rate, the lower the bond price. The bond yield is agreed at the time of issuance and determined according to the market interest rate at that time. Market interest rates have risen. Obviously, the bond yield is lower than the market, and the price reduction is consistent with the market interest rate.
2. Interest rate refers to the ratio of interest amount to principal in a certain period, usually expressed as a percentage, which is called annual interest rate if calculated on an annual basis. The calculation formula is: interest rate = interest amount/principal x time × 100%. The purpose of adding x 100% is to convert the number into a percentage, which means the same as multiplying by 1. You don't need to add it in the calculation, just remember it.
3. Bond/debenture is a kind of financial contract, which is a debt certificate issued to investors by the government, financial institutions and industrial and commercial enterprises when they directly borrow money from the society to raise funds. At the same time, they promise to pay interest at a certain interest rate and repay the principal according to the agreed conditions. The essence of a bond is a certificate of debt, which has legal effect.
Relationship between bond price and market interest rate
Suppose a new bond is issued and sold with the principal of 100 yuan, and the coupon rate of this bond is the market interest rate. Then the bonds issued before and still circulating in the secondary market, if the coupon rate of those bonds is lower than this market interest rate, only when the price is reduced will someone buy them; However, even if the selling price of coupon rate bonds is higher than this market interest rate, people will scramble to buy them. Therefore, it will be said that the higher the market interest rate, the cheaper the bond.
The interest rate in this market itself is determined by the relationship between supply and demand in the market.
Three principles of the relationship between market interest rate and bond price
1, the market interest rate and bond price change inversely, that is, the market interest rate rises, the bond price usually falls, the market interest rate falls, and the bond price usually rises;
2. The ratio between the bond price and the change of market interest rate is about the term of the bond. If the duration is d, there are: price change =-D × interest rate change.
3. The above formula is approximately equal to and needs to be corrected by convexity.