Why bonds’ prices drop when interest rates increases? and why longer tenor’s bonds have larger drops in prices?
The price of a bond, which gives the owner rights over future cash flows, should be equal to the present discounted value of those cash flows. The interest rates that guarantees the equality of cash flows and price of bonds is defined as the yield rate. Bonds’ prices and yield rates are inversely related. When […]
Measuring corruption
Measuring corruption is challenging because participants have incentives to hide it. According to the United Nations, annual costs from corruption are estimated at 5% of Gross Domestic Product (GDP). The IMF (2016) estimates that the annual cost of bribery is 2% of GDP and according to IMF (2019) corruption reduces tax income in at least […]