Question

A 20-year bond has 10% coupon rate (paid semi-annually; next coupon due 6 months from today)...

A 20-year bond has 10% coupon rate (paid semi-annually; next coupon due 6 months from today) and $1,000 face value. Its yield to maturity (nominal, compounded semi-annually) is 8%.

  1. How much is a rational investor willing to pay for the bond?

  1. If the yield to maturity decreases from 8% to 6%, what will happen to the bond price?
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Answer #1

a)

b)

Bond price will increase. Bond price and YTM has inverse relationship.

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