Financial Economics - Bond Prices and Interest Rates

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 and the yield will vary inversely with the market price of a bond. When bond prices are rising, the yield will fall and when bond prices are falling, the yield will rise. This revision presentation takes you through some numerical examples.