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T-bonds: Price, Coupon Rate and Yield to Maturity

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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 the 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 uses step by step calculations to determine the price, coupon rate, and yield to maturity of the bond if the market yields decrease.

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a. Number of periods = 10*2 = 20
Future value = $100,000
Payment every period = 2500

The present value of each cash flow formula is:
PV = CF / (1+r)^n
where CF is the future ...

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