7 per cent. Today you’re quite happy with the choice, because you’ve looked around the market and have found out that no other investment vehicle gives you that high a return on that low a risk. However, later that year, say the RBI raises the interest rate by 1 per cent. Now, the interest rate on the government bond that is issued after the rate rise will be 8 per cent. Notice that your bond, which you bought earlier in the year, is only giving a 7 per cent return. When new bonds from the same borrower are available at 8 per cent, why would anyone buy your 7 per cent bond? So if you wish to
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