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Purpose of this activity is to give understanding of the relationship that exists among yield to maturity, current yield and bond price.
Graded Discussion Question:
Yield to Maturity (YTM) is the rate of return required on a bond in market. If YTM increases over current yield, it has negative impact on bond price. On the other hand, if YTM decreases than current yield, it positively affects the price.
a) Keeping in view the above mentioned relationship, identify when the bond will be selling at premium and when at discount?
b) Also discuss why YTM has an inverse relation with bond price?
Your comments should be supported with proper rationale within the context of YTM and current yield. General comments willNOT be awarded marks.
After attempting this activity, students will be able to understand the reasoning of relationship that exists between YTM & current yield and effect of this relationship on bond price.
Ø Post your GDB comments (answer) against GDB # 01 rather than against lessons’ MDB.
Ø Your discussion must be based on logical facts.
Ø Your comments on the topic should not exceed 200 words.
Ø Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
Ø Books, websites and other reading material may be consulted before posting your comments; but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0) even if you provide references.
Ø Obnoxious or ignoble answer should be strictly avoided.
Ø Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.
Ø For Detailed Instructions, please read the GDB# 01 announcement
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