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Question: bond prices and interest rates please would you help me...

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Bond Prices and Interest Rates
01000000359 5c5800500008d Bond prices and interest rates Aa Aa he remarkable thing about the events described in the artice is that the yield on the 3-month T.bil was briefly egative. To see how could happen, you need an understanding of the relation between bond prices and ond yields. A 3-month T-bill with a maturity value of $1,000 is just a piece of paper that entitles the holder to $1,000 in three months. For example, if you were to buy a 3-month T-bill on September 24, 2008 with a maturity value of s1,000 and 90 days left to maturity, the US. government would pay you $1,000, on December 23, 2008. In general, the price of a bond is less than its maturity value. That is, if you are going to give up a certain amount of money for the duration of the bond, you expect to be paid for this loss of liquidity, and also to be compensated for inflation that could reduce the value of the repayment at the end of the period. Therefore, a piece of paper entitling you to $1,000 on December 23 would usually be worth less than $1,000 on September 24. The yield on a bond is a function of the percent by which your money implicitly grows while invested in it. In order to compare yields among bonds, yield is always reported as an annual interest rate. A bonds yield is a function of its maturity value (M), its price (Ps), and the number of days until it matures. The general formula for the yield on a zero-coupon bond such as a T-bill is: Percentage Yield 100% x Days to Maturity For example, if you were to pay s995 for a T-bill turing in 90 days with a face value of $1,000, the percentage ma yield would be: $1,000 $995 360 Percentage Yield 100% x $1,000 51.000 100% x
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