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Explaining Bond Prices and Bond Yields

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​In this revision video we work through some numerical examples of the inverse relationship between the market price of fixed-interest government bonds and the yields on those bonds. ​Government bonds are fixed interest securities. This means that a bond pays a fixed annual interest – this is known as the coupon The coupon (paid in £s, $s, Euros etc.) is fixed but the yield on a bond will vary The yield is effectively the interest rate on a bond. The yield will vary inversely with the market price of a bond 1.When bond prices are rising, the yield will fall 2.When bond prices are falling, the yield will rise - - - - - - - - - MORE ABOUT TUTOR2U ECONOMICS: Visit tutor2u Economics for thousands of free study notes, videos, quizzes and more: https://www.tutor2u.net/economics A Level Economics Revision Flashcards: https://www.tutor2u.net/economics/store/selections/alevel-economics-revision-flashcards A Level Economics Example Top Grade Essays: https://www.tutor2u.net/economics/store/selections/exemplar-essays-for-a-level-economics
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Text Comments (25)
tutor2u (7 months ago)
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Ghazi Khan (12 days ago)
Thank you so much❤
Rex Yiu (2 months ago)
Thank you so much, very helpful !
Sean Rojas (2 months ago)
“Bond yields” yet you only explain current yield. What about yield to call or yield to maturity or nominal yield!???
Francesca Mariano (2 months ago)
very clear! thanks
broncojonnes (3 months ago)
good shit
Oscar Monroy (3 months ago)
Ramesh Raju (4 months ago)
That means Yield depends on which price we bought the bond ..correct?
Luke Tarrant (4 hours ago)
Exactly. So if the bond was originally issued by the government at a nominal of £100 with a coupon of £10 it would mean that your fixed interest is 10%, so in effect you'd receive 10 pounds for every year you held onto the bond. However, if you bought this bond from someone else for let's say £110, you're paying more money for the same return. Therefor your yield would be diminished because the coupon is fixed for the life of the bond. Now let's say you have your bond that you paid £110 for, but elsewhere people can buy bonds with a larger coupon (let's say 20%) There's no way in hell you're going to be able to sell on your bond for the same price you bought it as a buyer could get a much better fixed interest elsewhere for the same price. The interest on your coupon is fixed so you can't change that. The only way you're going to be able to make your bond attractive to a buyer is to sell it for less. This is obviously a simplified version of events, but you get the picture.
sampath kandimalla (9 months ago)
Amal Soren (11 months ago)
Numerical was really helpful...thanx for that great explanation
Brandon Gum (11 months ago)
Great video. Thankyou
ismayil Rahimli (1 year ago)
It's a great presentation, thank you very much!!
Fan Emran Hashmi (1 year ago)
Suparb. Its too good
Destiny Ziarkowski (1 year ago)
This was awesome!  Thank you!
Freddie Edwards (1 year ago)
Great vid
Bavanツ (1 year ago)
Why r u considering that the interest rate is fixed? What if they change?
Tony Duff (11 months ago)
The interest rate (coupon) is fixed at outset. The prevailing lending interest rate outside of the bond can vary, and this will have an impact on the Bond value. Lending rates, inflation and credit worthiness are all risk factors to Bonds and affect their price and therefore their yield
Vishal Gupta (1 year ago)
Very well explained, thank you!
Steven Stam (1 year ago)
thank you
Souraan grg (1 year ago)
It was really helpful sir! Thumbs up for the great work!
SynCrux (1 year ago)
Wow, this is the only video that explains everything I need to know, and in a super easy-to-understand way!! Thank you so much!!!
slinkkk crown (1 year ago)
incredible ! thank you for making this video :))))))
TheUltimateGemini (1 year ago)
helpful a lot!
Wajeeha Gull (1 year ago)
Thank you so much...super presentation ...

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