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Sir,
In lectures on debentures you said that
The M.V is reduced inorder to match to
prevailing interest of market…But how would it benefit the investors?
Since they would receive fixed interest?Once someone has invested in debt, then the interest they receive (the coupon rate) is indeed fixed.
However the MV is the price at which investors can sell their investment to other investors. If general interest rates fall then the MV will increase and that will benefit someone owning the debt because it will be worth more if they choose to sell it.
Yes sir,
That is one instance whereby general
infl’on is decreasing..What if general inflation increased
And subsequently reduced market value thereby higher interest yeild..So how is investor benefited during inflation
Since interest are fixed exacerbated by reduced market value.Nobody says that the current investor benefits – they continue to receive the same interest in $’s.
However if the MV falls, then someone buying the debt will be getting a higher rate of interest (because the interest yield that they require is what determines the market value that they have to pay).
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