The yield on a bond

Question

The yield on a bond

Quizplus · Accepted Answer

The yield on a bond is the return that an investor will receive from holding the bond. It is inversely related to the bond price, meaning that if the bond price increases, the yield decreases, and vice versa. This is because the yield is calculated based on the coupon payments divided by the bond price. As the price goes up, the coupon payments become a smaller percentage of the price, leading to a lower yield. Conversely, as the price goes down, the coupon payments become a larger percentage of the price, leading to a higher yield. The other choices are not accurate. A) is incorrect because the yield on a bond can change over time. B) is incorrect because the yield on a bond can be affected by many factors beyond just the term to maturity. D) is incorrect because the face value of a bond is unrelated to the yield. E) is incorrect because the coupon rate is used to calculate the coupon payments, which in turn are used to calculate the yield.

The Yield on a Bond