Bond market opening proceeds mainly through three channels: • Bond Connect 'Northbound Trading' — overseas investors trade interbank market bonds via infrastructure connectivity between Hong Kong and mainland China. In August 2026, monthly trading volume reached RMB 803.9 billion, with an average daily turnover of RMB 38.3 billion; by month-end, 844 overseas investors had entered the market. Policy bank bonds accounted for 58% of holdings, government bonds for 22%, and 7–10 year maturities comprised 51%—indicating stronger overseas investor interest in medium- to long-term instruments. • Swap Connect — enables overseas investors to participate in onshore RMB interest rate swaps in the interbank market to manage interest rate risk. In August 2026, 'Northbound Swap Connect' recorded 906 trades with a total notional principal of RMB 543.101 billion; cumulatively, 99 overseas institutions had joined the program. • Direct Market Access — overseas institutions may enter the interbank market via the settlement agent model. As of end-May 2026, 633 institutions were registered on a legal-entity basis. As of end-March 2026, foreign institutions held RMB 3.2 trillion in onshore bond custody accounts, representing 1.6% of total onshore bond custody balances. Though this share remains modest, both growth potential and strategic significance are substantial. Section IV: Bond Valuation I. Principles of Bond Valuation The core idea behind bond valuation is simple: a bond’s intrinsic value equals the present value of all its future cash flows. Where: — represents the bond’s intrinsic value; — denotes the coupon payment in period ; — is the face value; — is the discount rate (typically the market interest rate or the investor’s required rate of return); — is the number of remaining periods. This formula reveals two fundamental pricing principles: 1. Bond prices move inversely with market interest rates — when market rates rise, the discount rate rises, reducing the present value of future cash flows and lowering bond prices; conversely, prices rise when rates fall. This is the first iron law of bond investing. 2. Longer maturity implies greater price sensitivity to interest rate changes — for an identical change in interest rates, long-term bonds experience larger price fluctuations than short-term bonds. This insight forms the basis of the concept of duration. II. Key Factors Affecting Bond Value Factors influencing bond value fall into two categories: internal and external. (A) Internal Factors Factor Direction of Impact Maturity Longer maturity increases exposure to interest rate volatility and price uncertainty. Coupon Rate Higher coupon rates generate larger interim cash flows, reducing price sensitivity to interest rate changes. Call Provision A call option benefits the issuer but disadvantages investors, thereby lowering bond value. Tax Treatment Tax-exempt bonds offer higher after-tax yields; valuation must incorporate appropriate tax adjustments. Liquidity Greater liquidity reduces required liquidity premiums, increasing bond value. Credit Rating Lower credit ratings demand higher credit risk premiums, raising the discount rate and lowering value. (B) External Factors • Market Interest Rates — the most critical external variable; moves inversely with bond prices. • Inflation — rising inflation expectations push up nominal interest rates, depressing bond prices. • Exchange Rates — for foreign-currency bonds, exchange rate fluctuations directly affect investors’ domestic-currency returns. III. Bond Quotation vs. Actual Payment Price Bond quotation and actual payment price are two distinct concepts, differing by accrued interest: Why distinguish between clean price and quoted price?

CPA Financial Management: Diagrammatic Explanation of Coupon Payment Methods and Their Relationship with Bond Value (for Efficient Objective-Question Solving)

Understanding and memorizing the following two diagrams will enable rapid resolution of objective-type questions and significantly reinforce foundational knowledge. I. Continuous Coupon Payments (Note: Assume coupons accrue continuously at every instant; resulting value changes follow a smooth curve.) II. Periodic Coupon Payments (e.g., semiannual or annual) (Note: Bond value rises as the next coupon date approaches, drops immediately after coupon payment, and repeats this pattern until maturity.) Special Note: Whether a bond trades at a discount or premium can be determined by comparing its coupon rate with the market interest rate. The simplest method is to refer to the preceding diagrams: the horizontal axis represents time; the vertical axis shows interest rates, with the middle line indicating the market (effective) interest rate and the upper/lower lines representing the coupon rate. Frequently tested conclusions — such as determinants of bond value and comparative valuations across bond types — are all visually embodied in these diagrams. Therefore, the conclusions listed below need not be rote-memorized. Factors Affecting Bond Value: 1. Face Value: Larger face value → higher bond value. 2. Coupon Rate: Higher coupon rate → higher bond value. 3. Discount Rate: Higher discount rate → lower bond value. [Note] Fundamental Principle of Bond Pricing