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Suppose that the yield to maturity for DEF bonds decreases from 5% to 2%. How will...

Suppose that the yield to maturity for DEF bonds decreases from 5% to 2%. How will this impact the coupon rate paid to current DEF bondholders?

a) The coupon rate will increase

b) The coupon rate will decrease

c) The coupon rate will be unaffected

d) Cannot be determined.

Solutions

Expert Solution

Ans - Option C. The coupon rate will be unaffected

Change in yield to maturity does not impact the coupon rate rather than it impacts the Price of Bond.

Thus, Change in yield to maturity of DCF bonds from 5% to 2% will impact the Price of bond and not the Coupon rate paid.

jeff jeffy answered 2 years ago
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