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Characterize the price of a coupon bond P, considered as a function of the yield rate,y....

Characterize the price of a coupon bond P, considered as a function of the yield rate,y. show more details.

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Answer #1

Price of coupon bond can be on par, discount or premimun as per the relationship between yield rate and coupon rate.

Par bond: A bond is said to on par when the yield rate is equal to coupon rate.

Discount rate: When coupon rate is less than yield rate then bond is sold on discount and called dicsount bond.

Premium bond: When coupon rate is more than the yield rate then the bond is said to be sold on premium.

There is inverese relationshipd between price of coupon bond and yield rate thus if the rate is increasing then the bond price will decrease and vice versa.

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