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Discussion 3 Interest rates

Why are bonds so sensitive to Interest rates? Do a Google search to find out a recent bond issue and discuss its features. What are some of the tools used to determine stock valuations? Are these tools keeping up with today’s new dot.com companies? Do they truly reflect the values of these companies? Are the company’s common stocks today reflective of their true values? How does this affect your decision-making process? Feel free to expand on your answer.

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Bond are sensitive to interest rates because bond price is inversely related with interest rates. A higher interest rate in market means the new bonds that will be issued will provide investors with higher coupon payments than the current ones which investors are holding. So, investors will buy current bonds and sell previous ones due to higher coupon payments owing to higher current interest rates. This demand for higher coupon rate bonds lead to decrease in value of the previous bonds hence the inverse relationship. There are two different categories of stock valuation methods they are absolute and relative.

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