FREE Trial

a. What is the relationship between the price of a bond and its YTM? b. Explain why

Question:

a. What is the relationship between the price of a bond and its YTM?

b. Explain why some bonds sell at a premium over par value while other bonds sell at a discount. What do you know about the relationship between the coupon rate and the YTM for premium bonds? What about for discount bonds? For bonds selling at par value?

c. What is the relationship between the current yield and YTM for premium bonds? For discount bonds? For bonds selling at par value?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 90% (10 reviews)

YTM is bsed n the urrent mrket rte rie f the bnd is deided by the revil...View the full answer


answer-question-section
Answered By
tutor-profile-image
Antony Mutonga
I am a professional educator and writer with exceptional skills in assisting bloggers and other specializations that necessitate a fantastic writer. One of the most significant parts of being the best is that I have provided excellent service to a large number of clients. With my exceptional abilities, I have amassed a large number of references, allowing me to continue working as a respected and admired writer. As a skilled content writer, I am also a reputable IT writer with the necessary talents to turn papers into exceptional results.
4.50+ 2+ Reviews 10+ Question Solved
Related Book For  book-img-for-question
Fundamentals Of Corporate Finance

Fundamentals Of Corporate Finance

ISBN: 9781265553609

13th Edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

See More Books
Question Posted:
See More Questions

Related Video

Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.

Students also viewed these Business questions

Non Verbal Communication Techniques What The Body Says All You Need To Know To Defend Yourself And Influence Others At Work In Love And Everyday Life 1st Edition - ISBN: B0BRC94712 - Free Book