A 10 year Corporate Bond is issued with a face value of $100,000.00, paying interest of $2,500.00 semi-annually. If market yields decrease shortly after the T-bond is issued, what happens to the bond's:
B) Coupon Rate
C) Yield to Maturity
As market yield decrease that means the discount rate used for discounting all future payments from bonds decrease. Hence the bond price will increase.
Example, if the yields increase to 4%, Then the price of the bond will be
=PV of coupon payments + PV of face value paid on maturity
The solution discusses the effects on a T-bond when market yields decrease. In particular, it discusses how the price, coupon rate, and yield to maturity change.