Analyzing the Impact of Yields on Current Bond Prices Based on Bond Pricing Theory

Abstract

For businesses, financial institutions, and other organizations, funds can be raised through several methods, including issuing stocks or bonds or obtaining bank loans. Bond issuance is a crucial financing tool. When a business or institution decides to issue bonds, the yield is a key consideration because it determines both the financing cost and the cash flow required for repayment. This study used bond pricing theory and mathematical derivations to analyze the relationship between corporate bond prices and yields. The analysis showed that bond prices and yields are inversely proportional. This finding indicates that businesses can determine bond pricing and interest payments, as well as the repayment amount and term of bank loans, based on their expected cash flows and acceptable financing costs, thereby ensuring cash-flow stability and reducing financing risk.