Ask Question
BusinessBusiness
4 August, 23:39

Explain the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond. (Select the best answer below.) A. The market value of the bond approaches its par value as the time to maturity declines. The yield to maturity approaches the coupon interest rate as the time to maturity increases. B. The market value of the bond approaches its par value as the time to maturity increases. The yield to maturity approaches the coupon interest rate as the time to maturity increases. C. The market value of the bond approaches its par value as the time to maturity increases. The yield to maturity approaches the coupon interest rate as the time to maturity declines. D. The market value of the bond approaches its par value as the time to maturity declines. The yield to maturity approaches the coupon interest rate as the time to maturity declines.

+4
Answers (1)
  1. 4 August, 23:47
    0
    D. The market value of the bond approaches its par value as the time to maturity declines. The yield to maturity approaches the coupon interest rate as the time to maturity declines.

    Explanation:

    One explanation of the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond, is that the market value of the bond approaches its par value as the time to maturity declines. The yield to maturity approaches the coupon interest rate as the time to maturity declines.

    According to the definition of yield to maturity, it takes into consideration the coupon rate (i. e. the interest amount earned per year) for the number of years left to maturity, it is often higher because it treats the amount earned each year as being re-invested.

    Therefore the amount of yield to maturity will fall as the time to maturity nears and will approach the coupon rate

    Secondly, A bond's par value is the dollar amount it will be worth when it reaches maturity.

    Before its maturity date, the bond may sell for more than par value on the secondary market as the yield it pays becomes more attractive to buyers.

    Therefore the difference between par value and market value is the yield. hence as maturity nears, yield to maturity falls and market value approaches par value because the bond is what its par upon maturity.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Explain the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond. ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers
You Might be Interested in
Consider the widget exchange. Suppose that each widget contract has a market value of $0 and a notional value of $100. There are three traders, A, B, and C. Over one day, the following trades occur: A long, B short, 5 contracts.
Answers (1)
Skoff Corporation is a shipping container refurbishment company that measures its output by the number of containers refurbished.
Answers (1)
Workers with knowledge-based education and managerial skills are a. unskilled labor. c. skilled labor. b. semiskilled labor. d. professional labor.
Answers (1)
Calculating Present Values. Suppose you are still committed to owning a $150,000 Ferrari (see Question 9). If you believe your mutual fund can achieve a 10.
Answers (1)
Buy More Books is a discount bookstore chain that recently acquired Premiere Books, a smaller chain that offers extra services, such as special orders on books and music, and has a coffee area where customers can have a drink and look through books.
Answers (1)
New Questions in Business
Cash flows from operating activities for both the indirect and direct methods are presented for Electronic Transformations.
Answers (1)
A subtle form of racial discrimination in housing is "racial steering." racial steering occurs when real estate agents show prospective buyers homes only in neighborhoods already dominated by that family's race.
Answers (1)
Candy, Inc. signed an agreement with Sweet Plantation. Under the contract, Candy, Inc. agreed to purchase all the sugar cane Sweet Plantation grew during the coming season for $0.16 per pound. This contract will be unenforceable due to its vagueness.
Answers (1)
Why is it not useful to look around the room when listening to a speech?
Answers (1)
In a process costing system, the calculation of equivalent units is used for calculating the dollar amount of ending inventory the dollar amount of the cost of goods sold for the accounting period the dollar cost of a particular job Both A and B are
Answers (1)
Home » Business » Explain the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond. (Select the best answer below.) A.
Sign Up Forgot Password?