Question

PART 1:
Why Corporate Bonds are carrying "exchange prices" fluctuating everyday and different from it's original "Issued Prices" by corporations?

PART 2:
Describe how the market interest rate, relative to the contractual interest rate, affects the selling price of bonds. Also explain the rationale for requiring an investor to pay accrued interest when a bond is purchased between interest payment dates.

Answer 1

1.corporate bonds are traded regularly in the secondary market because they have a bond yield associated with it and they keep on changing according to various kinds of events which are happening into the economy .

The bond yields are used to to provide an estimate about the popularity and the demand of the bond of a company and it is also used to reflect the solvency of a company so these are traded even if it is different from the issue price of the corporation.

2. Market interest rates affect the price of the bond because the interest rates of market which goes up, the prices of the bonds eventually comes down so there exist an inverse relationship between the two.

An investor is to be paid accrued interest when he bond purchase between interest payment date because of with interest and ex interest concept where the interest is already embedded into the bond when he is purchasing it.