Question

Assume a bond is currently selling at par value. What will happen in the future if the yield on the bond is lower than the coupon rate

Answer 1

The answer is 'The price of the bond will increase'

Step-by-step explanation:

Bond and its price are indirectly related i.e If one goes up, the other goes down. What this means is that, if the yield of the bond is lower than coupon rate(coupon rate greater than bond yield), the price of the bond will increase. And also if the yield of the bond is higher than coupon rate(coupon rate lower than bond yield), the price of the bond will decrease.