Market Yield Impact on Bond
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A 10-year corporate bond is issued with a face value of $100,000, paying interest of $2,500 semi-annually. If market yields decrease shortly after T-bond is issued, what happens to the bond's:
A. Price
B. Coupon rate
C. Yield to maturity
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Solution Summary
This solution looks at what happens to a bond's price, coupon rate, and yield to maturity (YTM) when the market yield decreases.
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The price of the bond goes up.
Since the market yield has decreased that means that the interest rate has gone down. Bond prices move in opposite direction of interest rates. As the interest rate goes down the price of the bond goes up (conversely if the interest rate goes up the price ...
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