Consider a 2-year coupon bond, with annual coupons and a coupon rate of 7%. You do...
Consider a 2-year coupon bond, with annual coupons and a coupon rate of 7%.
You do not know the yield to maturity, but you do know that it remains constant.
Then over time what do we expect to happen to the bond’s price?
a. The bond's price will gradually fall to par as it approaches maturity.
b. The bond's price will gradually increase to par as it approaches maturity.
c. The bond's price will remain equal to par as it approaches maturity.
d. Not enough information is given to answer this.
Homework Answers
Option D is correct. Not enough information is given to answer this.
Reason : - If YTM is less than the Coupon Rate then the Price of Bond will gradually fall to par as it approaches maturity and if the YTM is more than the Coupon Rate then the price of the Bond will gradually increase to par as it approaches maturity and if YTM is equal to the Coupon Rate the Value of Bond will be equal to Pat Value. So, it can not be determined by the given information.
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