<p>This is because bond prices increase when interest rate falls.</p>
<p>A general bond pricing formula can be expressed as as a discounted stream of future cash flows from the coupon and the value of the bond itself. Hence we have:</p>
<p><span class="math-container">$$ P = \sum^T_{t=1} \frac{C_t}{(1+i)^t}+\frac{M}{(1+i)^T}$$</span></p>
<p>Where <span class="math-container">$P$</span> is the price of the bond, <span class="math-container">$C$</span> is the coupon <span class="math-container">$i$</span> the interest rate, and <span class="math-container">$M$</span> the value at maturity (i.e. the face value). You can also learn more about the formula <a href="https://courses.lumenlearning.com/boundless-finance/chapter/valuing-bonds/" rel="nofollow noreferrer">here</a> if you are interested.</p>
<p>As you can see from the above formula when <span class="math-container">$i$</span> increases <span class="math-container">$P$</span> decreases and vice versa.  Hence fall in the interest rate is good for you if you are a bond holder as now you can sell your bond on secondary market for more than before.</p>

CC BY-SA 4.0
2020-07-29T11:03:58.667Z
Many thanks for this answer! So I guess it is bad times to invest into bonds, isn't it, as interest are low everywhere. I really want to get educated into these macroeconomics questions for citizen knowledge as well as investing. Do you know any resources where I could? I already follow investopedia's newsletter
Revolucion for Monica
CC BY-SA 4.0
2020-07-29T11:19:54.867Z
@RevolucionforMonica whether it’s good or bad time to get bonds is debatable - they are extremely safe if you make short time investment they might be worth while - you also not necessarily need to resell them you can hold them to maturity. Good way to learn about this is from undergrad textbooks. You want finance/financial econ not macro in which finance is dealt with in highly abstract way. Miskin’s financial market and institutions is good but probably it has too much policy discussion if you just want to know about personal finance. You can ask for some better reference as a new question
1muflon1
CC BY-SA 4.0
2020-07-29T10:39:22.137Z
2020-07-31T18:10:13.557Z
2020-07-31T18:10:13.557Z
1muflon1
<p>I’m reading about England debt in 1819 and how interest rate benefited its creditors. The country had a public debt of more than 250% of the GDP.</p>
<blockquote>
<p>With peace at last achieved, London is faced with a mountain of debt that it intends to repay.  And for good reason: it is owned by the aristocracy and the most influential members of Parliament (they will not fail to make huge gains on their &quot;consols&quot; (consolidated bonds) thanks to the fall in interest rates,  the Rothschild's fortune dates from these days)</p>
</blockquote>
<p>How does the creditors of those consolidated bonds benefited from a fall in interest rates ? How do you benefit from a fall in interest rates in general as a creditor of public bonds?</p>

<interest-rate><bonds>
How do you benefit from a fall in interest rates in general as a creditor of public bonds?
Revolucion for Monica
# How do you benefit from a fall in interest rates in general as a creditor of public bonds?

(Asked by: username_0 on 2020-07-29)

I’m reading about England debt in 1819 and how interest rate benefited its creditors. The country had a public debt of more than 250% of the GDP.

> With peace at last achieved, London is faced with a mountain of debt that it intends to repay. And for good reason: it is owned by the aristocracy and the most influential members of Parliament (they will not fail to make huge gains on their "consols" (consolidated bonds) thanks to the fall in interest rates, the Rothschild's fortune dates from these days)

How does the creditors of those consolidated bonds benefited from a fall in interest rates ? How do you benefit from a fall in interest rates in general as a creditor of public bonds?

**Tags:** interest-rate, bonds


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## 1 answers

### Answer by username_1 on 2020-07-29. Score: 1 | Accepted answer

This is because bond prices increase when interest rate falls.

A general bond pricing formula can be expressed as as a discounted stream of future cash flows from the coupon and the value of the bond itself. Hence we have:

$$ P = \sum^T\_{t=1} \frac{C\_t}{(1+i)^t}+\frac{M}{(1+i)^T}$$

Where $P$ is the price of the bond, $C$ is the coupon $i$ the interest rate, and $M$ the value at maturity (i.e. the face value). You can also learn more about the formula [here](https://courses.lumenlearning.com/boundless-finance/chapter/valuing-bonds/) if you are interested.

As you can see from the above formula when $i$ increases $P$ decreases and vice versa. Hence fall in the interest rate is good for you if you are a bond holder as now you can sell your bond on secondary market for more than before.

> **Comments:**
> **username_0**: Many thanks for this answer! So I guess it is bad times to invest into bonds, isn't it, as interest are low everywhere. I really want to get educated into these macroeconomics questions for citizen knowledge as well as investing. Do you know any resources where I could? I already follow investopedia's newsletter  
> **username_1**: @RevolucionforMonica whether it’s good or bad time to get bonds is debatable - they are extremely safe if you make short time investment they might be worth while - you also not necessarily need to resell them you can hold them to maturity. Good way to learn about this is from undergrad textbooks. You want finance/financial econ not macro in which finance is dealt with in highly abstract way. Miskin’s financial market and institutions is good but probably it has too much policy discussion if you just want to know about personal finance. You can ask for some better reference as a new question  

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