Why do yields fall when bond prices rise? - ProProfs Discuss
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Why do yields fall when bond prices rise?

Asked by Ewing, Last updated: Jan 26, 2020

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1 Answer

John Smith

John Smith

Answered Sep 08, 2016

Yield refers to the return per year that an investor would receive if he or she purchasedthe bond today and held it to maturity. the yield on a bond is based on 2 things: theamount of interest income received each year, the amount of gain or loss the investorwill experience theoretically each year based on the difference between the price paidand the maturity price.when bond prices fall, yields rise. why? because if the price is lower, the investorwho buys that bond today and pays a lower price will have a greater capital gain on topof the interest income received.
 

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