2.2Investment Foundations · Mission 3
Why Market Rates Change Bond Prices
A bond’s promised dollars can stay fixed while their market value changes. Reprice the same cash flows as the return available in the market moves.
Your mission
Use present value to connect a market-yield change to bond price, price position, and a one-year investor return.
18–20 minutesFive guided missionsOne rate-risk record
Guided bond lab
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OPS Guide
The bond’s promised dollars arrive in the future. Learn how the market yield translates those future payments into a price today.
Run the present-value comparison.
Mission 1 of 5 · Value
Translate future cash into value today
Two definitions
Market yield
Market yield is the return investors currently require from a bond with comparable timing and risk.
Present value
Present value is the amount a future payment is worth today after accounting for the return available while waiting.
Compare one $1,040 payment due in ten years. A higher available return lets an investor start with fewer dollars today and still reach the same future amount.
2% required return · OPS model
Value today
?
Year 10
$1,040
5% required return · OPS model
Value today
?
Year 10
$1,040
Run the present-value comparison.
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