Question

Suppose owned a bond, but you believe the bond’s YTM is too high. What action should...

Suppose owned a bond, but you believe the bond’s YTM is too high. What action should you take?

Homework Answers

Answer #1

Bond prices and yields are inversely related. Higher a bond's yield, lower the price.

A bond's yield is the bond's required return for investors. It reflects the risk of the bond.

If you believe the bond’s YTM is too high, it means that the bond is underpriced. This is because given the bond's features and risks, the yield of the bond is higher than your expectation.

Therefore, you should hold the bond, or alternatively, you could consider increasing your investment in the bond to achieve higher returns

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