Finance Formulas / July 19, 2018 / Avalynn Orr
To examine the relationship between interest rates and bond prices, imagine an investor buys a bond from ABC Corporation with a 4% coupon rate and a $1,000 face value. Another investor waits a few weeks before buying a bond, and during that time, the issuer raises interest rates to 6%. At this point, the second investor can buy a $1,000 bond from ABC Corporation and receive $60 in interest per year.
The debt ratio is shown in decimal format because it calculates total liabilities as a percentage of total assets. As with many solvency ratios, a lower ratios is more favorable than a higher ratio.
We Also Think You’ll Like