Consider a 7-year bond with a 9% coupon and a yield to maturity of 12%. If interest rates remain constant, 1 year from now the price of this bond will be ________.

Question

Quizplus · Accepted Answer

The price of a bond is inversely related to the yield to maturity. If interest rates remain constant, the yield to maturity will not change. However, the price of the bond will increase as it approaches maturity. This is because the bond will be worth more as it gets closer to the date when it will be redeemed at par value.

Consider a 7-Year Bond with a 9% Coupon and a Yield