Identify at least four factors that affect a bond’s yield. Briefly explain the effect that each factor has on the yield.

Four factors that effect a bond yield are:

1.  Interest rates

2.   Inflation

3.  The yield curve

4.  economic growth

Explanation:

Four factors that affect a bond yield are:

1. Interest rates: higher interest rates by the bank often leads to rises in corporate bond yields.

2. Inflation: with high inflation level in the economy, in which prices of commodity increases, the credit risk also increases, this results in positive pressure on yields.

3. The yield curve: this gives or predicts the economic situation in terms of growth and output. Therefore, this leads to investors to put their capital in either short-term securities or long-term bonds which effects bonds in general.

4. economic growth: this leads to increased revenues and profits for companies, and in turn results in lower yields on bonds.

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