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Assume a discount bond has a few years until maturity and a positive yield. All else...

Assume a discount bond has a few years until maturity and a positive yield. All else constant, the bond's yield to maturity is A. directly related to the time to maturity. B. equal to the coupon rate. C. inversely related to the bond's market price. D. unrelated to the time to maturity. E. less than its coupon rate.

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Answer #1

Answer: C. inversely related to the bond's market price.

Explanation: A bond's price is the sum total of the PVs of cash inflows from the bond if, it is held till maturity. The cash inflows, obviously are the periodic interest receipts (at the coupon rate) and the maturity value. As for the discount rate, the market interest rate is used. If the market interest rate is equal to the coupon rate, the bond will quote at face value. If the market interest rate is more than the coupon rate, the price will be lower than the face value and vice versa.Hence, Price of a bond andi its YTM are inversely related.

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