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Interest rate and value of bond

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(Querist)
05 November 2012 Why does increase in interest rate lead to fall in the value of bond and Vice-verse?
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CA Roshan Jha

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CA Roshan Jha (Expert)
05 November 2012 In my opinion, If interest rate rises than holders of bonds who are committed to receive a fixed rate of interest can not take advantage of such rise and hence the value of bond falls down and opposite happens in case of reduction in interest rates.
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Sharwan Baluni

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Sharwan Baluni (Querist)
06 November 2012 How holder of bond cannot take advantage of rise in interest rate.
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CA Roshan Jha

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CA Roshan Jha (Expert)
06 November 2012 Suppose, you have already Purchased a bond the interest rate of which is 10%.suppose the market rate at the time of purchase of bond was 8%, later on the market rate went up to 12%.will your bond interest rate will also rise to 12%? Answer is no, because you have already committed to a fixed rate of interest irrespective of market rate of interest. I hope you understood.
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