Interest rate risk bonds formula
In general, short-term bonds carry less interest rate risk; less responsive to unexpected interest rate changes than long-term bonds are.This implies that short-term bonds carry less interest rate risk than long-term bonds, and some financial theorists cite this as support for a popular hypothesis that the higher yields of long-term bonds include a premium for interest rate risk. Interest Rate Risk I Continue with the same setup I But now suppose that interest rates go up to 15 percent in period t +1 and are expected to remain there I Then the price of the bond in period t +1 will be: 1000 1.1529 = 17.37 I Your return is then: R = P t+1 P t P t = 17.37 57.31 57.31 = 0.69 I On a discount bond, an increase in interest