Okay -- so STEP TWO of this is to explain how these "work".
Stocks go up and down depending on how many people want to BUY vs how many people want to SELL...
Corporate BONDS and MUNI BONDS pay a fixed rate - so to the BORROWER - they're paying the issued rate - let's just use 10%.
If you bought a 1,000 bond paying 10% and you bought at PAR... then you paid 1,000 and you're going to get 10% interest. But lets say interest rates are RISING..... and the "market" is at 12% -- your bond is going to have to be DISCOUNTED until the yield is equal to 12%. Remember - the borrower is only paying 10%.... so if you want to sell your 10% bond -- the new buyer needs to pay you less in order to "yield" the currently higher market rate of 12%.
If you held your bond to maturity - you're going to just get your 10% and then get all your money back. But if you chose to sell it in a rising interest rate market - you'd lose money. The REVERSE is true in a falling interest rate environment. If market rates fell to 5% - you're bond might be worth TWICE as much as you paid!
Remember that bonds have MATURITY DATES -- it's the combination of what that date is - sooner or later - and the rate it pays - that determines it's "price" (value) on any given day.
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