Discussion post 1 When interest rate rise bond prices fall, when interest rates go down bond prices increase this is the inverse relationship this seems a little complex, this is happened because when interest rates rise investors can get a better rate of return so the price of original bond adjust downward to yield at the current rate

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Discussion post 1 When interest rate rise bond prices fall, when interest rates go down bond prices increase this is the inverse relationship this seems a little complex, this is happened because when interest rates rise investors can get a better rate of return so the price of original bond adjust downward to yield at the current rate. Bonds are a type of loan the loan is for the company or for government in return the investors receive interest rate income. There are many types of bonds but nearly all bonds have these three main characteristics which are face value, maturity, and coupon. Bonds of all kinds operate on basic principle as an investor’s loan money to the bond issuers and the issuer pays you interest on the loan typically twice a year. Face value is the value the portion of the loan usually either $1000 or $5000 that’s the amount you get back from the issuers on the day bond matures. A bond price is in constant flux can be more or less than the face value. The second characteristics is Maturity the day the bonds comes due like 30 year bond comes due 30 years from the day it is issued. Most of the bonds issues within 30 years mature. But maturity can be short as a year or even shorter. The third characteristics is coupon the bonds come with attached coupons that on investors had to clip and redeem for the interest payments. The size of the interest payment is still called the coupon. Apple recently sold $14 Billion in bonds to buy back stock, apple said it might use part of the proceeds to buy shares or pay dividends. It might impact to think about the investors. Investors knows the company have more cash $196 billion and mark able securities on its balance sheet. Reference: Brealey, R. A., Myers, S. C., & Marcus, A. J. (2020). Findamentals of Corporate Finance. New York: McGraw-Hill Education. Fernando, J. (2021, August 2). Bond. Investopedia. https://www.investopedia.com/terms/b/bond.asp. Discussion post 2 Interest rates in the market and bond prices are inversely correlated. Changes in market interest are expressed in bond prices since the coupon rate of a bond is fixed and bond maturities are set at the original issue. With large interest rate shifts in the economy, the fixed price of the bond does not fluctuate. Interest rate rises are compensated by the fall in the value of a bond, and vice versa. This is known as interest rate risk. Interest rate risk is the possibility of a loss of capital due to volatility in interest rates (Cornett, Adair, & Nofsinger, 2016). New bonds would pay higher interest rates than current bonds as interest rates increase. To put the ROI in line with the new bonds, the current bonds would need to be sold at a different value. For instance, assume that you bought a bond with a $1000 face value, which matures with a 4% coupon rate in 4 years. And you will get a $40 interest rate at the end of year 1 and you have three years for the bond to mature. The interest rate is raised to 5 percent by the end of year 1 and a return of $50 and three years to maturity when an investor purchases the same $1000 bond on the market. In general, a bond is a type of debt that investors pay to issuers for a given period of time. In a layman’s language, bondholders provide the company issuing the bond with credit. Bonds have a fixed maturity date in general. After the maturity date, all bonds repay the principal amount; but some bonds pay the interest to the bondholders along with the principal (Brealey et. al., 2020) Bonds are debt security issued for new projects by companies, governments, or other organizations that are sold to raise capital. Compared to stocks, bonds are less volatile and if a company files for holders of bankruptcy bonds, the payments are paid before the stockholders. The investors receive the capital back with interest payments during the holding period of the bond as the bond matures. There are two types of bonds that are secured and unsecured. Secured bonds are protected by collateral, and there is no collateral for unsecured bonds, referred to as junk bonds. Although junk bonds pay high interest rates, they are considered to be a lot riskier. Generally, seven types of bonds exist. Those are treasury bonds, U.S. government bonds, investment-grade corporate bonds, high-yield bonds, foreign bonds, mortgage-backed bonds, and municipal bonds. Deere issued 30-year corporate bonds with a yield of 2.877 percent in September 2019 (Goldfarb, 2019). By selling these 30-year bonds, the company plans to repay its current debt. The bond is perceived to be one of the lowest interest rates on the market after 2016's Walt Disney. References Brealey, Myers, and Marcus, Fundamentals of Corporate Finance, 10th Edition, McGraw-Hill Irwin, 2020. Cornett, M., Adair, T., Nofsinger, J. (2016). M: Finance (3rd Ed.). Irwin McGraw-Hill. Goldfarb, S. (2019). Deere Sells 30-Year Corporate Bonds at Record Low Yields.