The Bondholder's Expected Rate Of Return (Yield To Maturity)
Bond Valuation: Five Important Relationships
The value of a bond is inversely related to changes in the investor's present required rate of return (the current interest rate)
The market value of a bond will be less than the par value if the investor's required rate is above the coupon interest rate; but it will be valued above par value if the investor's required rate of return is below the coupon interest rate.
As the maturity date approaches, the market value of a bond approaches its par value.
Long-term bonds have greater interest rate 1'isk than do short-term bonds.
The sensitivity of a bond's value to changing interest rates depends not only on the length of time to maturity, but also on the pattern of cash flows provided by the bond.
The duration of a bond is simply a measure of the responsiveness of its price to a change in interest rates. The greater the relative percentage change in a bond price in response to a given percentage change in the interest rate, the longer the duration.