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Consider a discount bond and assuming that the YTM is expected to remain constant over the lifeti...

Consider a discount bond and assuming that the YTM is expected to remain constant over the lifetime of the bond, does one expect the current yield to go up, down, or stay the same each year of the life of the bond and is the current yield less than, greater than or the same as the YTM?

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Answer #1

Prima facie, the bond will trade at discount as YTM>coupon rate

In cased of a discount bond, price increases as the time passes and reaches to the redemption price on maturity.

We know that

Current Yield = Annual coupon / Current market price

So the current yield will goes down.

Also current yield will be less than YTM

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