Bond Price and Yield Relationship

Hard Fixed Income Valuation Yield Measures

A fixed-income investor is evaluating a bond that has a coupon rate of 6%, a face value of $1,000, and matures in 10 years. The bond pays coupons annually. Current market rumors suggest that interest rates for bonds of similar risk and maturity have risen to 8%. In order to assess the impact of these changes on the bond's price, the investor wants to know how the bond's Yield to Maturity (YTM) compares to its coupon rate.

Which of the following statements correctly describes the relationship between the bond's price and its YTM?

The bond’s price will be at par since its coupon rate equals the market interest rate.

The bond’s price will be above par because its coupon rate exceeds the market interest rate.

The bond’s price will be below par since its coupon rate is less than the market interest rate.

Hint

Submitted5.5K

Correct4.1K

% Correct76%