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    Yield to Maturity, Interest Rate, Longer Maturity or Higher Coupon Rate

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    In determining the yield to maturity on a bond at a given interest rate, you get a value below the current market price, in the next calculation should you use a higher or lower interest rate or a longer maturity or higher coupon rate?

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    Solution Preview

    You used a 'given' interest rate and you found out that the bond price that you calculated is below the actual market price. You can use a lower interest rate or a higher coupon rate. Explanation is below:

    1) Interest Rates:
    Keep in mind that bond prices and interest rates are inversely related. Thus, greater the interest rates, lower the bond prices and ...

    Solution Summary

    This solution discusses the effect of interest rates, time to maturity and coupon rate on the price of the bond in 250 words.