easy · Principles of Finance valuation
A 10-year corporate bond with a 5.0% annual coupon is currently trading at par.
If the market yield to maturity (YTM) suddenly increases to 5.5%, what will happen to the bond's price?
- The price will decrease by exactly 0.5% to match the yield change.
- The price will decrease, and the magnitude of the fall is determined by the bond's duration.
- The price will increase because investors demand higher returns for higher risk.
- The price will remain at par because the coupon rate is fixed at 5.0%.
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