If you purchase a 10 year bond today with the intention of selling it a year from today, you would like the yield to maturity to ____.

A) equal the coupon rate
B) not change
C) increase
D) decrease

Question

If you purchase a 10 year bond today with the intention of selling it a year from today, you would like the yield to maturity to ____.A) equal the coupon rateB) not changeC) increaseD) decrease

Jeanmael Rodriguez · Accepted Answer

Final Answer : D, Explanation :  If you intend to sell the bond before it reaches maturity, you are exposed to interest rate risk. If interest rates rise, the bond's market value will decline, leading to a loss if you sell it. Therefore, you would prefer the yield to maturity to decrease, as this indicates that interest rates have risen and the bond's market value has declined, allowing you to buy it back at a lower price and realizing a profit when you sell it.

If you purchase a 10 year bond today with the intention of selling it a year from today, you would like the yield to maturity to ____.

A) equal the coupon rate
B) not change
C) increase
D) decrease

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Learning Objectives

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