A $1 000 bond with a coupon rate of 5.4% paid semi-annually has five years to maturity and a yield to maturity of 7.5%. If interest rates rise and the yield to maturity increases to 7.8%, what will happen to the price of the bond?

Question

Quizplus · Accepted Answer

When the yield to maturity on a bond increases, the price of the bond falls. This is because the fixed coupon payments become less attractive compared to the new higher yields available in the market, leading to a decrease in the bond's price to adjust for the higher yield.

A $1 000 Bond with a Coupon Rate of 5