Question

Answer the following questions on bonds:

1) What is the difference between interest rate and return on bonds, moreover, should the investors be more concerned about 'interest rate' or 'rate of return'?

2) The return on a bond is necessarily equal or not equal to the interest rate on that bond. Comment on it.

- Please write an elaborative answer, avoid short answer. Thank you - I will give you a like on your effort :)

Answer 1

An interest rate is a calculation convention that allows us to summaries a string of cash flows that will hb occur at different points in time with a single percentage figure. By convention, interest rates are always given on an annual basis (per annum).

2/ Rate of return

A rate of return is the amount of money you’ve made from an investment divided by the initial amount invested.

An Investor should always concerned with rate of return as it is more realistic.

Rate of return and Interest rate are not equal.