Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
Search the full text of this book:

by Robert Hashemian

Page 52

year Treasury bond or long bond. This condition is referred to as the inverted yield curve. Based on history, some economists view such condition as a precursor to recession.)

Here is how the bond yields move up or down. If an investor buys $1,000 worth of bonds at 6% yearly interest, the yield of the bond is also 6%, meaning that the bondholder would receive yearly interest payments of $60.

$1,000 x 6% = $60

But since most bonds are marketable securities, their base price on the open market can change depending on supply and demand, driven by factors such as inflation, Fed decisions on interest rates, and speculation. If, for example, demand is decreased, the same bond may be obtained for $960 in the market while the interest rate (which remains constant during the life of the bond) would remain at 6% per year based on its face value of $1,000. In this scenario then the bond yield would be calculated at:

$60 / $960 = 6.25%

The change in bond yield based on 1/100 of a percentage point is expressed as basis points. So in this case the bond yield moves up by 25 basis points:

6.25%-6% = 0.25% or 25 basis points

If, on the other hand, the bond price moves up to $1,029, the bond yield is works out to:

$60 / $1029 = 5.83%


<< Prev Page   |:::::::::::::::::::::::::|   Next Page >>
Table of Contents
Copyright and Disclaimer
  • If you have enjoyed reading this page, please consider purchasing the book or making a Bitcoin donation 1K9TzBvQ2oaEb4tX9t2vKDtZouMcpfV6QF.
  • Book Chapters
    Table of Contents Copyright and Disclaimer Foreword Money
    Bonds Futures Stocks Options
    Mutual Funds Retirement Final Words Appendix A

    Read Financial Markets  |   Home  |   Blog  |   Web Tools  |   News  |   Articles  |   FAQ  |   About  |   Privacy  |   Contact
    Donate Bitcoin: 1K9TzBvQ2oaEb4tX9t2vKDtZouMcpfV6QF
    paypal.me/rhashemian
    © 2001-2019 Robert Hashemian   Powered by Hashemian.com