This segment discusses and explains in both a theoretical way and a practical way why the price of a bond is inversely correlated to interest rates. You will have a greater understanding of this topic after watching this segment.
Most traders know that interest rates and bond prices are inversely correlated. As one goes up the other goes down. The question is why it is so. That is discussed here in both a mathematical way and an intuitive way.
A bond is worth the present value of all its future payments. Dr. Jim provided the formula for net present value. You don’t have to be able to do the math. You just have to understand the basic concept.
The relationship is then explained on an intuitive level. An example of Amazon (AMZN) selling bonds was discussed. A scenario in which AMZN issued a four year term and then two years later, after rates had moved, issued a 2 year bond. It was easy to understand.
Watch this segment of “From Theory to Practice” with Dr. Jim Schultz to learn about the Bond market and to learn why Bond prices have an inverse relationship to interest rates both through a math and intuition component.
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