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Interest Rate I Bonds
Carol Said:How do I issue bonds? Does a bank set the interest rate, or can I choose my own?
We Answered:The bank has nothing to do with it. If you want to issue a bond, you will have to set an interest rate at which you can sell the bonds. I do not know what you mean by charging yourself.
Wayne Said:How can GOv raising interest rate makes bonds more attractive to buy?
We Answered:Right. No long-winded answer required. You have a firm grasp of the mechanics.
PS - To the previous respondee's point, I have about $150 million in carry trades in my portfolio at the moment. This term generally refers to bonds or derivatives you plan to hold to maturity/expiration. In this scenario, it is true that you will earn the coupon as stated when you entered the position, unaltered by any rate change. However, if rates go up and you need to close the position before it matures, you will take a mark-to-market loss.
Alicia Said:Why is it that when the price of bonds go up, the interest rate falls?
We Answered:It is due to the definition of what interest on a bond means. Suppose I have a bond that promises to pay $107 in one year, if I pay $100 for it the interest rate is 7% that is 107/100=1.07, however if I pay $102 the interest rate is 5% that is 107/102=1.05. It is just math not any economic principle.
Becky Said:What is the new interest rate for i-bonds for May 1st?
We Answered:The new inflation rate is 0.77%, down from 1.53%. Added to your fixed rate of 1.1% the total rate you will get will be 1.87%.
If you were to buy a new i-bond today the fixed rate would be 0.2%, giving you a total rate 0.97%.