1. Bond prices and yields A 10

1. Bond prices and yields A 10-year bond is issued with a face value of $1,000, paying interest of $60 a year. If interest rates increase shortly after the bond is issued, what happens to the bond’s

a. Coupon rate?

b. Price?

c. Yield to maturity?

2. Bond prices and yields The following statements are true. Explain why.

a. If a bond’s coupon rate is higher than its yield to maturity, then the bond will sell for more than face value.

b. If a bond’s coupon rate is lower than its yield to maturity, then the bond’s price will increase over its remaining maturity.

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