posted by Jennifer on .
does anyone know how rising inflation rates would effect the price of bonds?
Take a shot, and think it through. Hint: bonds typically have a fixed face value (e.g., $1000) and a fixed interest payment schedule (e.g., 6% of the face value per year), and a fixed maturity date (e.g., 10 years).
So, if there was zero inflation, how much would you pay for a bond that paid $60 per year for 10 years and $1000 at maturity? How much would you pay if you expected 3% inflation?