According to this formula, the lower the interest rate, the lower the issue price of the left creditor's rights. In fact, think about it in another direction. Why do you invest money in debt when the market interest rate is high? Investors will turn to high-return investments.
Note: The compound interest cash value and annuity cash value are obtained by viewing the compound interest cash table and annuity cash table. The higher the market interest rate, the lower the issue price. Looking up these two tables, we can clearly see that when the market interest rate is higher than that of coupon rate, the issue price will be less than the face value, which is the discount. The lower the interest rate, the higher the issue price, which is a premium issue.
Supplement: The price of bonds is determined by factors such as face value, coupon rate, repayment period and market interest rate.
Generally speaking, when other factors remain unchanged,
–The greater the face value of bonds, the higher the price;
The higher the coupon rate, the higher the bond price;
The higher the market interest rate, the lower the bond price.
The relationship between repayment period and bond price is slightly complicated, depending on the relationship between coupon rate and market interest rate.
When the market interest rate is higher than that of coupon rate, the longer the repayment period, the lower the bond price.
On the other hand, when the market interest rate is lower than coupon rate, the longer the repayment period of bonds, the higher the price of bonds.