Question: When an investor sells a bond in the secondary market
When an investor sells a bond in the secondary market before the bond reaches maturity, what determines the return on the bond? How do interest rate movements affect bond returns in general?
Answer to relevant QuestionsDiscuss the effect of taxes on bond returns. Describe how the interest rate strategy for bond investment works. What are some of the potential problems with this strategy? What is a convertible bond? How does a bond’s convertibility feature affect its return? Sandy has a choice between purchasing $ 5,000 in Treasury bonds paying 7% interest or purchasing $ 5,000 in BB rated corporate bonds with a coupon rate of 9.2%. What is the risk premium on the BB rated corporate bonds? What if Mark’s Treasury bond in the previous problem had a coupon rate of 9% and new bonds still had interest rates of 8%? For what price should Mark sell the bond in this situation?
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