So you lower your selling price of the bond and offer it to buyers in the secondary market at a discount so that the new owner will generate a return of approximately 8 per cent from your bond also. In this case, the price would be about 875 rupees. So if you sell your bond after rates rise, you will make a capital loss. The reverse is true if the RBI drops interest rates, say by 1 per cent again. Now the interest rate on new bonds will be 6 per cent, and your 7 per cent bond will look very attractive to new investors. The price on your bond, therefore, will go up in value until the 1 per cent
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