He needs to sell his bond now, even though its maturity date is still several years away. Using these case studies as examples, write two or three paragraphs discussing the relationship between interest rates and bond prices. Practice Questions 1. Describe how to calculate current yield and yield to maturity. Answer Key Exercises 1.
Corporations sell bonds to help finance their ongoing business activities.
They usually sell bonds when they expect interest rates to be more advantageous than selling more shares of stock. A debenture is a bond backed only by the reputation of the issuing corporation. A mortgage bond is a corporate bond secured by various assets of the issuing firm. A subordinated debenture is an unsecured bond that gives bondholders a claim secondary to that of other designated bondholders with respect to both income and assets. Changes in overall interest rates in the economy are an example of the concept of interest rate risk.