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I’m doing questions for Business valuation,
And Im not able to recall studying the fall in bond prices due to rising interest rates…. I’m trying to relate it with IRR calculation that you explained to find market value but I just don’t understand can you help….
The market value of any investment is the present value of the future receipts discounted at the investors required rate of return (we never calculate the IRR if calculating the market value).
If interest rates increase then the investors required rate of return will increase. Discounting the future receipts at a higher required rate of return will result in a lower present value.
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