Identify at least four factors that affect a bond’s yield and explain the effect each factor...

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Identify at least four factors that affect a bond’s yield and explain the effect each factor...

Identify at least four factors that affect a bond’s yield and explain the effect each factor has on the yield.

business finance

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Answer 1

Answer #1

The bond's yield depends on the following factors:

1. Interest rates : A common factor that affects the bond prices and yield in turn is the interest rate which have an inverse relationship with the bond yield.

2. Safety of the bond: A higher rated bond is considered safe and will have a high yield compared to a poorly rated bond.

3. Inflation expectations: If the future inflation expectation is higher , the yield on the bonds goes down and vice versa.

4. Years to maturity: The higher the years to maturity, greater will be yield on the bond and reverse is true as well.

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Answer 2

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