What happens to bond payout when interest rates increase?
Let's say you buy a bond when interest rates are 2%.
Then before your bond payout, interest rates rise to 5%.
Does this mean you will receive 5% interest on your bond until it is through?
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Answer by Chas
No. You buy a bond at 2% that's what you get forever. If interest rates go to 5% you still get 2%. The only thing is if you have to sell the bond you get less than you paid for the bond because the buyer will want it to be effectively 5%.
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