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Essentials Of Investments
Found in: Page 329
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

Consider a bond with a 10% coupon and with yield to maturity 5 8%. If the bond’s YTM remains constant, then in one year will the bond price be higher, lower, or unchanged? Why?

The bond price will be lower than it was at the beginning of the year.

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Step by Step Solution

Definition

The total anticipated return on a bond if it is held till maturity is known as Yield to Maturity or YTM.

Explanation on the higher yield

With the passage of time, the bond value will decrease when yield to maturity is lower than the coupon rate.

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