Ethanpaul1189 Ethanpaul1189

25-07-2019
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Is it better for bondholders when the yield to maturity increases or decreases? Bondholders are better off when the yield to maturity: A. decreases, since this represents an increase in the price of the bond and a decrease in potential capital losses. B. increases, since this represents a decrease in the price of the bond and an increase in potential capital gains. C. decreases, since this represents an increase in the coupon payment and an increase in potential capital gains. D. increases, since this represents a decrease in the bond maturity and a decrease in potential capital losses.

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isyllus isyllus

01-08-2019

Answer: Bondholders are better off when the yield to maturity: decreases, since this represents an increase in the price of the bond and a decrease in potential capital losses.

Here, the relation is inversely proportional between bondholders welfare and his/her yield to maturity.

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