Answer:
yield to maturity decreases.
Explanation:
The present value of a bond is calculated by discounting the cash flows associated with the bond using yield to maturity rate. These cash flows include the periodic coupon payment and the Maturity value of the bond.
The yield to maturity and the present value of the bond is inversely proportional to each other. As the yield to maturity increases the present value of the bond decreases and vice versa.
We use the following formula to calculate the present value of the bond
Use the following formula to calculate the price of the bond
Price of the bond = [ C x ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]
Where
F = Face value
C = Periodic coupon payment
r = Periodic yield to maturity
n = Numbers of periods
All other provided options are incorrect.
