Why do you think bond price and YTM are negatively related?

Expert Solution

Bond Price:
It refers to the sum of the present values of all likely coupon payments plus the present value of the par value at maturity. There is inverse relation between Bond price and YTM ( Discount rate ) and Direct relation between Cash flow ( Coupon/ maturity Value ) and bond Price.

Price of Bond = PV of CFs from it.

As YTM is increased, PVF willdecrease and hence price will decrease.

Hence Bond Price and YTM are inversely related. I.e If YTM increases, Bond Price will decrease and vice versa.

jeff jeffy answered 2 years ago

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