Your client has noticed that the 30-year bonds you recommended have become worth a lot less as the interest rates have increased and percentage wise the 30-year bonds have changed in value more than the 10-year bonds. They want to know why. Does it have anything to do with the change in the discount rate and valuation of the cash flows from the bonds?

You say, "Of course the value of any asset is the discounted value of future cash flows." Now your client is very puzzled. Please explain.

Answer rating: 100% (QA)

I apologize if my previous response was unclear Let me elaborate further on how changes in interest rates affect bond prices and the concept of discou... View the full answer