Which of the following will reduce the yield to maturity from what the investor calculated at time of purchase?
A) Increasing interest rates; bonds held to maturity
B) Decreasing interest rates; bonds held to maturity
C) Stable interest rates; bonds sold before maturity
D) Increasing interest rates; bonds sold before maturity

Question

Quizplus · Accepted Answer

When interest rates increase, the market value of existing bonds decreases. If an investor sells the bond before maturity in a higher interest rate environment, they will likely receive less than the bond's face value, reducing the yield to maturity compared to what was initially calculated.

Which of the Following Will Reduce the Yield to Maturity