Therefore, Bond B will likely experience a greater percentage change in price in comparison to Bond C.īond A will likely experience the greatest percent change in price due to die coupon effect and the maturity effect For two bonds with the same time-to-maturity, a lower-coupon bond has a greater percentage price change than a higher-coupon bond when their market discount rates change by the same amount. Percentage price change than a higher coupon bond when their market discount rates change by the same amount Bond B and Bond C have the same time-to-maturity (5 years) however, Bond B offers a lower coupon rate. Generally, for two bonds with the same time-to-maturity, a lower coupon bond will experience a greater Bond B will experience a smaller percent change in price than Bond A because of the coupon effect Bond B will also experience a smaller percent change in price than Bond C because of the coupon effect and the maturity Also, a shorter-term bond generally has a smaller percentage price change than a longer-term bond when their market discount rates change by tire same amount (the maturity effect). A higher-coupon bond has a smaller percentage price change than a lower-coupon bond when their market discount rates change by the same amount (the coupon effect). Bond B is priced at par value so its YTM is equal to its 6% coupon rate.īond C is priced at a discount below par value, so its YTM is above its 5% coupon rate.īond B will most likely experience tire smallest percent change in price if market discount rates increase by 100 basis points.
Bond A is priced at a premium, so its YTM is below its 5% coupon rate.
When a bond is priced at a premium above par value the yield-to-maturity (YTM), or market discount rate is less than the coupon rate. Bond A offers the lowest yield-to-maturity.
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