Bond prices are inversely related to interest rates.

• A fixed-rate bond paying $100 annually becomes more valuable when interest rates drop.

• Example: If rates fall to 5%, the bond price rises to $1,500 to match the yield.

• If rates rise to 15%, the bond price drops to $666.67 to remain competitive.

• Selling a bond before maturity exposes the investor to price fluctuations.

• A $1,000 par bond with a 10% coupon pays $100 annually.

• If interest rates drop to 5%, the bond remains attractive and may trade above par.

• If rates rise to 15%, government bonds offer $150 annually, making the corporate bond less appealing.

• To match the 15% yield, the bond price must fall to $666.67.

• Despite price changes, the bondholder still receives $100 annually and $1,000 at maturity.