Bonds: Yields Versus Price?

sean Connery...best Bond ever! :wink:

A bond is when someone borrows money from you.
If someone wants to give you an $100 I.O.U., how much would you be
willing to pay for it - if you can't get the $100 cash back from it for a whole year?

If you pay $33 for it now, then you can triple your money in a year! (yielding 200% profit).
If you pay $50 for it, then you can double your money in a year (yielding 100% profit).
If you pay $66 for it, you can make $33 profit (or 50% in a year).
If you pay $80 for it, you can make $20 profit (or 25% yield).
If you pay $91 for it, you can only make 10% profit.

As the price you pay goes up, it squeezes out your profit (or "yield").






If you google for "bond price yield" you'll find fluffier explanations at:
http://personal.fidelity.com/products/fixedincome/price.shtml
http://www.investopedia.com/university/advancedbond/advancedbond3.asp
http://bonds.yahoo.com/sm_bd3.html

Thank you for your excellent explanation. It's the first time, I've actually understood the relationship between price and yield.