All else held constant, the present value of a bond increases when the:
a. Coupon rate decreases.
b. Yield to maturity decreases.
c. Current yield increases.
d. Time to maturity of a premium bond decreases.
e. Time to maturity of a zero coupon bond increases.
Answer Explanation for Question: All else held constant, the present value of a bond increases when the:
A bond’s price and yield to maturity are inversely proportional. When the yield rises, the bond’s price falls and vice versa.
Bonds are valued by discounting their future cash flows by the current market interest rate. Therefore, the present value of a bond is the sum of: The present value of the semiannual interest payments plus the present value of the principal payment on the maturity date.