Paper Topic:

The effect of Interest rate on bond prices

Running Head : The effect of Interest rate on bond prices [Research Proposal]

The effect of Interest rate on bond prices [Research Proposal]

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1 .0 Introduction

The relationship between interest rates and bond valuation remains significant since bonds with different characteristics respond to variations in market interest rates differently (Sorwar and Nowman 2001 . It is with this premise that I seek to establish the effects of interest rates on bond pricing . This is a critical area since unlike

other loans such as car loans or home mortgages which require borrowers to make regular payments that is part of both the principle and interest bonds make interest only payments until maturity (Faerber 2008 . The relationship between bond pricing and interest rates therefore remains critical since bonds often come in many varieties based upon their basic characteristics . I am further interested in comparing the relative effects of interest rate on conventional and Islamic bonds (sukuk

Researchers have indicated that , investors tend to ignore the relevance of a system 's interest rate trend assuming that , investing in bonds carries no risk . Although bond prices are less volatile comparative to stock prices , they are not without risks , furthermore , other than factors related to the issuer and the debt , the market interest rates is also a key determinant . Evidently a number of key variables serve to define the effect of a given change in interest rates on the price of a bond some of which include the...

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