There is a Bond at 5%, with a fixed coupon of 100 that will not default....

There is a Bond at 5%, with a fixed coupon of 100 that will not default.

On a graph with Price as the Y-Axis and Yield on the X-Axis, show the relationship between price and yield.

Solutions

Expert Solution

Price and yield of a bond are negatively related to each other. The higher the price we pay for a bond, the lower is the yield associated with it and lower the price of the bond, the higher is the price of bond. Thus, there exists negative relationship between price and yield which can be depicted as:

Rahul Sunny answered 2 years ago

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