As the price of an existing bond increases,
A)The current yield decreases.
B)The par value decreases.
C)The coupon rate decreases.
D)There is increased risk that the U.S.Treasury will default on the bond.

Question

Quizplus · Accepted Answer

As the price of an existing bond increases, the yield decreases. This is because bond prices and interest rates are inversely related, meaning as prices go up, yields go down. Therefore, the current yield (which is calculated as the annual coupon payment divided by the bond's market price) will decrease. None of the other choices are accurate.

As the Price of an Existing Bond Increases