Series 3: 2.1.1. Yield

2.1.1. Yield

Market interest rates are constantly changing and may change dramatically during the life of a bond. These fluctuating interest rates have a corresponding impact on the bond’s market value. Suppose you want to sell your 6% bond in the market, and similar bonds to yours are being issued today at 8%. No one is likely to pay $1,000 to get $60 per year when they can lend the same amount and get $80. Your bond will not attract potential investors unless you offer to sell the bond at a discount; that is, below its par value. A bond that sells below its par value is called a discount bond.

Yield is the expected inco