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30 September, 15:12

Which one of the following bond values will change when interest rates change? The expected cash flowsThe present valueThe coupon paymentThe maturity value

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  1. 30 September, 17:03
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    The present value of the bond.

    Explanation:

    The present value of a bond will change when interest rate changes. The present value is the price at which you will buy the bond. Interest rate is also known as the yield to maturity (YTM). This interest rate has an inverse relationship with the price; meaning, if YTM increases, the price of the bond will decrease and vice versa.

    Expected cashflows are the recurring coupon payments which are usually fixed amount in the case of a coupon paying bond. For this reason, they do not change with changes in interest rate.

    The maturity value also known as the Face value or Par value is fixed and does not change with changes in interest rate.
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