Quick Finance Tip – Bond Price and Bond Implications

Bond Prices and Bond Implications includes the following:

• Bond price is inversely related to the market discount rate;
• Convexity Effect – Given similar coupon rates and times to maturity, the percentage price change is greater when the market discount rate decreases
• Coupon Effect – Given similar times to maturity, lower coupon bonds have a greater percentage price change than a higher coupon bond when their market discount rates change by the same amount
• Maturity Effect – Given similar coupon rates, a longer-term bond has a greater percentage price change than a shorter-term bond when their market discount rates change.