Question

The yield to maturity on a bond rises, which of the following is true? the rate...

The yield to maturity on a bond rises, which of the following is true?

the rate of return for someone currently holding the bond will be higher than otherwise.

its price changes by a larger percentage if it matures in five years rather than one.

its price rose

All of the above are correct.
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Answer #1

The yield to maturity on a bond rises, which of the following is true?

The yield to maturity is the percentage rate of return for a bond assuming that the investor holds the asset until its maturity date. It is the sum of all of its remaining coupon payments. Therefore, as yield to maturity of a bond rises the rate of return will also increase. This option is true.

Duration of maturity is inversely related to the bond’s yield to maturity. So, if a bond matures in five years rather than one its yield to maturity will decrease. This option is false.

A price rise will decrease the yield to maturity. Therefore, this option is false.

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