Question
An investor buys a bond with a face value of ₹1,000,
coupon of 8%, and market price ₹950. The bond matures in 5 years. What is the Yield to Maturity (YTM) trend and its implication?Solution
The bond is trading at a discount (₹950 < ₹1,000), so the effective yield (YTM) will be higher than 8%. Investors will earn more due to capital gain at maturity.
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