Bonds Interest Rate

Bonds & interest rates: what is the relationship?

I require a detailed explanation of the relationship between bonds and interest rates. Could you please tell me how it works with interest rates fall and rise, what happens to bonds, the roles of bonds, and anything else that relates to this issue. Thank you so much

Public Comments

1. You have $10,000 to invest. You want to invest in bonds and you have only two choices: (1) A US Treasury Note paying 1.5% interest and maturing on 1/15/2012 or (2) A US Treasury Bond paying 2.5% interest and maturing on 1/15/2012. Which one do you pick? It isn't a trick question. The obvious answer is the correct one. Everyone picks (2). Unless... The price of (1) is low enough to offset the extra interest that (2) pays or the price of (2) is high enough that it negates the extra interest that it pays. And now you know everything you need to know.
2. Sorry but that guy is wrong. you can choose to buy lots and lots of bonds.. corporate bonds-directly from corporations.. commercial paper, government bonds, local bonds. the list goes on and on. the amount that your bond is worth fluctuates with interest rates. if you have a bond thats 2.5 percent and interest rates are 3 percent your bond is worth less than if interest rates fell to 2 percent.. thats all. But bonds are not all created equal, each bond, from treasurey(safest) to corporate bonds and beyond, you are taking risk.. they also have according grading systems, aaa, bbb, etc.. Lots to learn if you have the time, and it will pay off for ya.