All else constant,as the market price of a bond increases the current yield ________ and the yield to maturity ________.

Question

Quizplus · Accepted Answer

When the market price of a bond increases, the bond's current yield decreases because the coupon payment remains the same while the price paid for the bond is higher. Yield to maturity also decreases as the bond is held until maturity, and the investor receives the face value, which is fixed at issuance, regardless of the market price. Therefore, as the price of the bond increases, the yield to maturity will decline.

All Else Constant,as the Market Price of a Bond Increases