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20 June, 05:22

Which of the following can cause an increase in the price of a discount bond? a. An increase in the YTM. b. A decrease in the YTM. c. The passage of time. d. Both A and C e. Both B and C

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  1. 20 June, 05:42
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    b. A decrease in the YTM.

    Explanation:

    Price of the bond is calculated using present value of future cash flows. while calculating present values of the cash flows or price of the bond, we use YTM for discount purpose. As we that higher rate gives lower Present value and Lower rate gives higher present value. Interest rate behave inversely with present value. So the reduction in YTM will increase the price of the bond.
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Home » Business » Which of the following can cause an increase in the price of a discount bond? a. An increase in the YTM. b. A decrease in the YTM. c. The passage of time. d. Both A and C e. Both B and C
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