An increase in the bond's yield acts to reduce its price, which reduces the

Question

Quizplus · Accepted Answer

An increase in bond yields leads to a decrease in bond prices. As a result, the holding period return, which is calculated based on the bond's purchase price and its selling price, will decrease. Therefore, choice A is correct. The current yield (the annual interest payment divided by the bond's current price) and coupon yield (the annual interest payment divided by the bond's face value) do not change as a result of changes in bond yields, so choices B and C are incorrect. The time to maturity is a fixed attribute of a bond and does not change as a result of changes in yield, so choice D is also incorrect.

An Increase in the Bond's Yield Acts to Reduce Its